Glossary – Financial Markets & Institutions
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advances
A bank's borrowings from the Federal Reserve System. Also known as discount loans.
adverse selection
The problem created by asymmetric information before a transaction occurs: the people who are the most undesirable from the other party's point of view are the ones who are most likely to want to engage in the financial transaction.
agency theory
The analysis of how asymmetric information problems affect economic behavior.
American depository receipts (ADR)
A receipt for foreign stocks held by a trustee. The receipts trade on U.S. stock exchanges instead of the actual stock.
American option
An option that can be exercised at any time up to the expiration date of the contract.
amortized
Paid off in stages over a period of time. Each payment on a loan consists of the accrued interest and an amount that is applied to repay the principal. When all of the payments have been made, the loan is paid off (fully amortized).
anchor currency
The currency to which a coutry fixes its exchange rate.
annuity
An insurance product that provides a fixed stream of payments.
appreciation
Increase in a currency's value.
arbitrage
Elimination of a riskless profit opportunity in a market.
asset
A financial claim or piece of property that is a store of value.
asset management
The acquisition of assets that have a low rate of default and diversification of asset holdings to increase profits.
asset market approach
Determining asset prices using stocks of assets rather than flows.
asset transformation
The process by which financial intermediaries turn ricky assets into safer assets for inv ...