Financial Innovation

AAA

DEFINITION of 'Financial Innovation'

Advances over time in the financial instruments and payment systems used in the lending and borrowing of funds. These changes, which include innovations in technology, risk transfer and credit and equity generation, have increased available credit for borrowers and given banks new and less costly ways to raise equity capital.

INVESTOPEDIA EXPLAINS 'Financial Innovation'

As seen with the global credit crunch sparked in 2008, which was triggered at least in part by innovative financial products such as exotic ARMs, there will always be a need for careful scrutiny of innovative financial products and their risks.

RELATED TERMS
  1. Speculative Risk

    A category of risk that, when undertaken, results in an uncertain ...
  2. Return On Innovation Investment

    A performance measure used to evaluate the effectiveness of a ...
  3. Risk-Return Tradeoff

    The principle that potential return rises with an increase in ...
  4. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  5. Available Credit

    The unused portion of an open line of credit, such as a credit ...
  6. Bid Wanted

    An announcement by an investor who holds a security that he or ...
Related Articles
  1. Options & Futures

    Variety A Bitter Spice For Investors

    Faced with too many choices? Find out how to cut the confusion and create a palatable portfolio.
  2. Credit & Loans

    Interest-Only Mortgages: Home Free Or Homeless?

    These loans can be beneficial, but for many borrowers, they present a financial trap.
  3. Options & Futures

    These Financial Products Are Too Complex For The Average Joe

    Structured financial products are so elaborate that investors are unable to assess costs and risk.
  4. Home & Auto

    Option ARMs: American Dream Or Mortgage Nightmare?

    Option adjustable rate mortgages could make or break your home-buying experience.
  5. Bonds & Fixed Income

    Payment Option ARMs: A Ticking Time Bomb?

    With these mortgages the loan's principal can continue to increase - even as payments are made.
  6. Trading Strategies

    How effective is creating trade entries after spotting a Sanku (Three Gaps) Pattern?

    Learn about the sanku, or three gaps, pattern including formation, interpretation and additional confirmation necessary to establish effective trades.
  7. Trading Strategies

    How do I build a profitable strategy when spotting a Rounding Bottom pattern?

    Understand the basics of the rounding bottom pattern, also known as the saucer, including formation and optimal entry and exit points.
  8. Trading Strategies

    How do I build a profitable strategy when spotting a Runaway Gap pattern?

    Understand the basics of the runaway gap and how to utilize this pattern to establish profitable trade strategies, including necessary confirmations before entry.
  9. Trading Strategies

    How effective is creating trade entries after spotting a Runaway Gap pattern?

    Understand the basics of the runaway gap and why strategies based on this signal, unlike other types of gaps, have only middling effectiveness.
  10. Trading Strategies

    How effective is creating trade entries after spotting a Rounding Bottom pattern?

    Understand the basics of the rounding bottom pattern, including formation and interpretation and how this pattern lends itself to effective trade strategy.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center