Economics – Ch10 and Ch11 – Flashcards
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Barter
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the direct exchange of one set of goods or services for another
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Currency
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coins and paper bills used as money
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Store of value
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something that keeps its value if it is stored rather than used
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Medium of exchange
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anything that is used to determine value during the exchange of goods and services
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Unit of account
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a means for comparing the values of goods and services
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Durability
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money must withstand the wear and tear that comes from being used over and over again
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Divisibility
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Money that can be easily divided into smaller units of value
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Difference between representative and fiat money
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Representative money has value because they can exchange it for other goods, while fiat money has value because the gov't has ordered it is an acceptable means of paying debt
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Default
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failure to pay back a loan
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Fractional reserve banking
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banking system that keeps only a fraction of funds on hand and lends out the rest
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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 card
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card used to buy goods and services based on their promise to pay them back
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debit card
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a card used to withdraw money
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Difference between simple and compound interest
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simple interest is interest paid only on principle, while compound is interest paid on both principal and accumulated interest
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credit union
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cooperative lending associations for particular groups, usually employees of specific firms/agencies
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How does a bank make most of its profit on its business?
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interest they receive from customers who have taken loans and savings/checking accounts
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financial system
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system that allows the transfer of money between savers and borrowers
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portfolio
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a collection of financial assets
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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; use of assets to earn income/profit
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financial intermediary
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institution that helps channel funds from savers to borrowers
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diversification
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spreading out investments to reduce risk
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return
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money an investor receives above and beyond the money initially invested
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mutual fund
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fund that pools the savings of many people and invests the money in a variety of stocks/bonds/etc
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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 when payment to a bondholder is due
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par value
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amount that an investor pays to purchase a bond that will be repaid to the investor at maturity
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savings bond
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low-denomination bond issued by the U.S. gov't
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municipal bond
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bond issued by a state/local gov't to finance improvements like highways and parks
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corporate bond
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bond that a corporation issues to raise money to expand its business
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Difference between primary and secondary market
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you can sell financial assets that can be only redeemed by the original holder in a primary market but you can resell financial assets in a secondary market
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OTC Market
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an electronic marketplace for stocks and bonds
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capital gain
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difference between a higher selling price and a lower purchase price, resulting in a gain
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brokerage firm
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business that specializes in trading stocks
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option
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contracts that give investors the choice to buy/sell stock
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bear market
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a steady decline in the stock market over time
