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Lesson Flashcards: Banks Economics

Default risk

The possibility that borrowers would not be able to fulfill their debt obligations

Universal banks

Banks that serve both as commercial banks (collecting individual deposits and making loans to firms) and as investment banks (advising firms and managing transactions in the financial market)

Specialized banks

Generally government-owned banks that lend money only to firms working in a designated field, such as agriculture, industry, or real estate, to boost the growth of specific sectors

Commercial banks

Financial institutions that primarily deal with individuals or firms in the economy to receive their deposits or to lend them money, often privately owned

Financial market

A marketplace where a firm’s securities, such as stocks and bonds, are traded

Indirect finance

The flow of money between a lender and a borrower that goes through a financial intermediary

Direct finance

The flow of money directly between a lender and a borrower without going through a financial intermediary

Commercial bank diversification

The process used by commercial banks to reduce the amount of default risk they are exposed to in a specific sector by distributing loans across a wide variety of sectors

Financial intermediary

An entity that serves as a middleman in financial tansactions, such as a bank

The gold standard

A system that ties the value of a nation’s currency to the amount of gold held in that nation’s reserves

Central bank

One centralized national agency, a financial institution with authority over a large number of monetary issues, from monetary policy to operating as the government’s bank

Investment banks

Banks that act purely as intermediaries between investors and firms in the financial market

Electronic (virtual) banks

Banks that perform all of their activities over the Internet without having physical buildings for customers to walk into

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