Banking Investment and Capital Markets Flashcards

What is a Treasury bill (T-bill)?

Answer: A short-term US government debt security maturing in one year or less

A Treasury bill is a short-term US government obligation with a maturity of one year or less, sold at a discount and redeemed at face value.

What does the term 'yield curve' refer to in banking?

Answer: A chart plotting interest rates of bonds with equal credit quality but different maturity dates

The yield curve plots interest rates across different bond maturities for the same issuer (typically US Treasuries), and its shape signals economic conditions.

In securities trading, what is a 'short sale'?

Answer: Borrowing securities and selling them, hoping to repurchase at a lower price later

A short sale involves borrowing shares and selling them with the intent to repurchase them at a lower price, profiting from a price decline.

What is a mutual fund?

Answer: A pooled investment vehicle managed by a professional that invests in a diversified portfolio

A mutual fund pools money from many investors and invests it in a diversified portfolio of stocks, bonds, or other securities managed by professional fund managers.

What is the difference between the primary market and the secondary market?

Answer: The primary market is where new securities are issued; the secondary market is where existing securities are traded between investors

In the primary market, issuers sell new securities to raise capital; in the secondary market, investors buy and sell previously issued securities among themselves.

What is a derivative financial instrument?

Answer: A financial contract whose value is derived from the performance of an underlying asset

Derivatives are financial contracts (such as options, futures, and swaps) whose value depends on the price or performance of an underlying asset like stocks, bonds, or commodities.