Economics Chapter 6 Money, Banking, and Financial Markets – Flashcards
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money
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anything that serves as a medium of exchange, unit of account and a store of value
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medium of exchange
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anything that is used to determine value during the exchange of g/s
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barter
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direct exchange of one set of g/s for another
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unit of account
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money provides a means for comparing the values of g/s
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store of value
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money keeps its value if you decide to hold on to it instead of spending it
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currency
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coins and paper bills used as money
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6 characteristics of money
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durable, uniform, divisible, limited supply of money, acceptable as a form of payment, and portable
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commodity money
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consists of objects that have value in and of themselves and that are also used as money
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representative money
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makes use of objects that have value solely because the holder can exchange them for something else of value
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specie
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coins made of gold or silver
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fiat money or legal tender
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has value because a government has decreed that it is an acceptable means to pay debts
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national bank
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a bank chartered, or licensed, by the federal government
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bank runs
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widespread panics in which great numbers of people try to redeem their paper money at the same time
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greenbacks
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official name of the currency in 1861, was demand notes, but people called it this
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gold standard
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monetary system in which paper money and coins had the value of certain amounts of gold
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central bank
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bank that can lend to other banks in times of need
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member banks
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banks that belong to the Fed
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foreclosures
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the seizure of property from borrowers who are unable to repay their loans
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monetary policy
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refers to the actions that the Fed takes to influence the level of real GDP and the rate of inflation in the economy
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reserves
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deposits that a bank keeps readily available as opposed to lending them out
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reserve requirements
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amount of reserves that banks are required to keep on hand
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check clearing
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the process by which banks record whose account gives up money and whose account receives money as a result of a customer writing a check
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bank holding company
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company that owns more than one bank
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federal funds rate
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interest rate that banks charge each other these loans
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discount rate
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rate the federal reserve charges for these loans
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money supply
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all the money available in the US economy
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liquidity
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(M1) the ability to be used as or directly converted into cash
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demand deposits
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funds in checking accounts
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money market mutual funds
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(M2) funds that pool money from a large number of small savers to purchase short term government and corporate securities
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functions of financial institutions
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storing money, saving money, making loans, mortgages, credit cards, interest, and making profit
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fractional reserve banking
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banking system that keeps only a fraction of its funds on hand and lends out the remainder
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default
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fail to pay back their loans
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mortgage
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specific type of loan that is used to buy real estate
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credit cards
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cards entitling their owners to buy g/s based on the owners' promises to pay
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interest
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price paid for the use of borrowed money
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principal
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amount borrowed
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types of financial institutions
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commercial banks, savings and loan associations, savings banks, credit unions, finance companies
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debit card
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withdraw money from an account
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creditor
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person or institution to whom money is owed
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investment
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act of redirecting resources from being consumed today so that they may create benefits in the future
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financial system
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the network of structures and mechanisms that allows the transfer of money between savers and borrowers
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financial assets
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documents represent claims on the property or income of the borrower. these claims are
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financial intermediaries
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institutions that help channel funds from savers to borrowers
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mutual fund
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pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets
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hedge fund
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private investment organization that employs risky strategies that often make huge profits for investors
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diversification
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strategy of spreading out investments to reduce risk
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portfolios
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collections of financial assets
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prospectus
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all intermediaries provide this and other information to potential investors in an investment report
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return
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the money an investor receives above and beyond the sum of money that has been invested
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coupon rate
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interest rate that a bond issuer will pay to a bondholder
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maturity
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time at which payment to a bondholder is due
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par value
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assigned by the issuer, the amount to be paid to the bondholder at maturity
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yield
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annual rate of return on a bond if the bond is held to maturity
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savings bonds
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low denomination bonds issued by the US government
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inflation indexed bond
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links the principal and interest to an inflation index-a measure of how fast prices are rising
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municipal bonds
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bonds to finance projects like, highways, state buildings, libraries, parks, and schools
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corporate bonds
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denomination usually $1000 or $5000
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junk bonds
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bonds with a fairly high risk of default but potentially high yield
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capital markets
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markets in which money is lent for periods longer than a year
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money markets
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markets in which money is lent for periods of one year or less
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primary markets
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financial assets that can be redeemed only by the original holder are sold on
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secondary markets
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financial assets that can be resold are sold on
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shares
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stock is issued in portions
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benefits of investing in stock
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dividends and capital stock
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capital gain
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difference between the higher selling price and lower purchase price
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capital loss
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an investor who sells a stock at a price lower than the purchase price but suffers a
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types of stock
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income, growth, common, preferred
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stock split
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means that each single share of stock splits into more than one share
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stockbroker
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person who links buyers and sellers of stock
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brokerage firms
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businesses that specialize in trading stocks
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stock exchange
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market for buying and selling stock
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futures
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are contracts to buy or sell commodities at a particular date in the future at a price specified today
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options
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contracts that give investors the choice to buy or sell stock and other financial assets
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call option
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option to buy shares of stock until a specified time in the future
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put option
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option to sell shares of stock at a specified time in the future
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bull market
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when stock prices in general steadily rise for a period of time
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bear market
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stock prices steadily fall or stagnate fir a period of time
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speculation
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the practice of making high risk investments with borrowed money in hopes of getting a big return
