Finance Terms - Statistics

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General Stats

This quiz has been taken 115 times
The average score is 3 of 20

Answer Stats

Hint	Answer	% Correct
• Debt as a proportion of total liabilities	Leverage	63%
• Value of a company (or asset) based on the price in the market	Market Value	41%
• Value (of asset or company) according to balance sheet	Book Value	36%
• Risk that bank or other lending entity will need to write off losses due to borrower failing to make payments	Default Risk	24%
• When many depositors try to withdraw deposits from a bank at once, leading to concerns over the bank’s ability to pay out deposits, leading to more attempted withdrawals and the potential for a vicious cycle	Bank Run	20%
• Risk of borrower not paying back payments as expected (e.g., late payments)	Credit Risk	20%
• A transaction in which one entity exchanges a security for a cash loan on an overnight basis (i.e., security is collateral for the cash), with the promise to rebuy the security the next day. • Entity loaning cash for the security receives both a haircut (i.e., cash is overcollateralized by the asset value), as well as an interest rate on loaned amount. • E.g., hedge fund exchanges asset for cash to increase leverage; while term is overnight, in practice almost all of this lending is rolled over; short term nature and high LTV ratio (high collateral value) makes this low-risk for cash lender in this transaction	Repo	17%
• Money lent to a bank by an individual or other entity that is redeemable at will• In the US, this debt has preference in the bankruptcy process over other creditors in the liability stack	Deposits	15%
• Risk that changes in interest rate will impact asset value; fixed-rate bond faces risk that interest rates rise and the price falls	Interest Rate Risk	13%
• Sensitivity of an asset price to change in interest rate (long-dated bond has a higher value of this than short-dated bond)• Aka, the average of when the cash flows of an asset will arrive	Duration	12%
• Above equity in capital stack, but junior to everyone else; fixed dividend payments • Two types of fixed dividend payments, cum and non-cum. For cum-dividend payments, if a dividend payment is missed, they accumulate and must be paid before common equity holders can receive dividends; for non-cum, they simply are forgotten • Top 4 banks have this, but none of the mag 7 do; mostly non-cum, as this is friendlier from a regulatory perspective and closer to common equity	Preferred Equity	12%
• Lowest tier in the liability stack• Represents ownership share/residual claim on assets after other creditors have been fulfilled • First to absorb capital losses	Common Equity	11%
• Short term, unsecured debt (less than 270 days); zero coupon; issued by highly rated banks and corps; MMMFs are/were large buyers of this (Lehman default disrupted the market) • Senior unsecured debt in the capital structure; pari-passu with other senior unsecured bonds	Commercial Paper	9%
• Packaging of assets into an SPV, where cash flows can then be passed on to claims sold to investors; generally in tranches with different risk ratings based on priority of claim to the underlying assets • Addresses need for “safe” assets; provides diversification of default risk of underlying assets; bankruptcy remote	Securitization	8%
• Securities on balance sheet at mark-to-market prices	AFS	7%
• Second derivative of sensitivity to interest rates; as interest rates rise, bonds are less sensitive to changes in interest rates, meaning that they are positive in regard to this concept	Convexity	5%
• Assets on balance sheet marked at historical cost; ostensibly intended to be held long term	HTM	5%
• Common stock net of treasury stock, retained earnings, AOCI, goodwill, intangibles • Exception: banks with assets <250bn were given option for one time election to omit AOCI from this category, essentially eliminating AFS volatility from regulatory consideration for these institutions	CET1	3%
• Capital that fulfills obligations as set by regulatory authorities; generally absorbs losses in times of financial stress	Regulatory Capital	3%
• A mismatch between the liquidity of assets and liabilities with claims to those assets; a common example would be the fact that depositors of a bank have the right to withdraw those deposits at any moment (i.e. very liquid), but assets on a bank’s balance sheet are often less liquid, creating a mismatch	Liquidity Transformation	1%

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