Final answer:
Amortization is the term that refers to periodic loan payments consisting of both a fixed amount of principal and the interest accrued on the unpaid balance. This concept applies to financial instruments, such as 30-year mortgage loans, which structure the repayment over time. The primary and secondary loan markets play significant roles in the creation and trade of such loans. The correct option is A.
Step-by-step explanation:
The term that refers to periodic loan payments that include a fixed amount of principal, plus interest on the unpaid balance is Amortization. Amortization schedules are used to outline the process of paying off a loan over a set period of time, such as a 30-year mortgage.
In this schedule, each payment is divided into the amount that goes toward the interest and the amount that reduces the principal balance.
Considering a mortgage as an example, a family takes out a 30-year amortization schedule for their mortgage loan. The initial payments are largely composed of interest, with a smaller portion reducing the principal.
However, as more payments are made and the principal balance decreases, the interest portion of each payment diminishes, and the amount applied to the principal increases.
This process aligns with the asset characteristics for banks, as the loan represents a legal obligation for the borrower to make payments over time.
The primary loan market deals with the origination of loans made to borrowers, while the secondary loan market involves the buying and selling of existing loans between financial institutions.
The dynamic of these markets is influenced by various factors including mortgage interest rates and the rate of inflation for given years. The correct option is A.