Economic Chapter 8

installment loans

[installment loan: borrowed money that is typically paid back in equal monthly payments]

Interest

[interest: a periodic payment for the use of borrowed funds; interest is paid on a loan]

Investing

[investing: using money with the intention of making a financial gain]

junk bonds

[junk bond: a low-quality corporate bond that earns a relatively high rate of interest based on its higher risk]

legal tender

[legal tender: currency that must be accepted as money for purchases and as payment for debts]

liquid assets

[liquid assets: items of value that can be used as cash or easily converted into cash; examples include traveler's checks and money deposited in bank checking accounts]

liquidity

[liquidity: the ease with which assets can be converted into cash]

loan

[loan: a transaction in which a lender gives money to a borrower, who agrees to repay the money at some point in the future]

market index

[market index: a way of measuring changes in the value of a group of stocks, bonds, or other investments]

money supply

[money supply: the total amount of money in the economy]

mortgage

[mortgage: money borrowed to buy a house, an office building, land, or other real estate]

municipal bonds

[municipal bond: a bond issued by a state or local government to raise funds for public projects]

mutual fund

[mutual fund: a collection of securities chosen and managed by a group of professional fund managers]

near-money

[near-money: an asset similar to money, such as a savings account, that serves as a store of value but cannot be used to buy things directly]

personal saving rate

[personal saving rate: the proportion of a household's income that its members save each year]

principal

[principal: the amount of money borrowed, or the amount of money still owed on a loan, apart from the interest]

prospectus

[prospectus: a legal document that provides information about a security offered to investors]

Purchasing power

[purchasing power: the value of a unit of money in terms of what it can buy]

Rate of return

[rate of return: the ratio of the money gained or lost by an investment relative to the amount invested; often expressed as the percentage gained or lost in a year]

real rate of return

[real rate of return: the ratio of the money gained or lost by an investment relative to the amount invested, adjusted for the effects of inflation]

risk

[risk: the chance of losing money or of failing in some way]

rule of 72

[rule of 72: a method of calculating how long it will take to double the value of an investment; the number 72 is divided by the investment's annual rate of return to determine its doubling time]

saving

[saving: setting aside a portion of income for use in the future]

Securities

[securities: investments, such as stocks, bonds, and mutual funds, that give their holders the right to receive some sort of return, or profit]

shareholders

[shareholder: an investor who buys shares of a company's stock]

stock market

[stock market: the market in which stocks and bonds are bought and sold]

Stocks

[stock: an investment that represents ownership in a business]

stockbrokers

[stockbroker: a person who buys and sells stocks and bonds for investors]

Traveler's checks

[traveler's checks: checks that can be used like cash by travelers to pay for goods and services]

yields

[yield: the income return on an investment, such as interest paid on a bond or dividends paid on a stock]

dividend

dividend: a portion of a firm's profits paid to owners of the firm's stock]

M1

[M1: money circulating in the economy that includes cash and assets that can be easily converted into cash]

M2

[M2: money circulating in the economy that includes M1 plus less liquid deposits in various kinds of accounts or funds]

Asset allocation

[asset allocation: a method of dividing investment assets among different types of investments, such as stocks, bonds, and cash]

assets

[asset: anything owned to which a market value can be assigned]

bank

[bank: a business whose main purpose is to receive deposits and make loans]

banknotes

[banknote: an early form of paper currency, issued by banks to clients who made deposits of gold or silver; these notes could be exchanged for gold or silver "upon demand"]

bear markets

[bear market: a prolonged period of falling stock prices, accompanied by widespread investor pessimism]

bond

[bond: an investment that represents a loan to a government or corporation and guarantees the lender a fixed rate of interest over the term of the loan, with repayment of the principal at the end of the term]

brokerage

[brokerage: a company that buys and sells stocks and bonds for investors]

budget

[budget: a plan for spending and saving]

bull markets

[bull market: a prolonged period of rising stock prices, accompanied by widespread investor confidence]

check clearing

[check clearing: the transfer of funds from one bank or account to another as a result of cashing a check]

check

[check: a signed form instructing a bank to pay a specified amount to the person or business named on it]

checkable deposits

[checkable deposits: money in bank checking accounts]

commercial loans

[commercial loan: money borrowed by a business to pay expenses]

commodity money

[commodity money: any good used as a medium of exchange; examples include gold, silver, and salt]

commodity-backed money

[commodity-backed money: currency that can be exchanged for a specific commodity, such as gold or silver; bank notes are an example]

Compound interest

[compound interest: interest paid not only on the original amount deposited in an account but also on all interest earned by those savings]

Compounding

[compounding: the ability of an investment to generate earnings that can be reinvested to produce still more earnings]

consumer loans

[consumer loan: money borrowed by an individual to make major purchases]

corporate bonds

[corporate bond: a bond issued by a corporation to raise money for its operations]

credit card

[credit card: a card authorizing the user to buy goods and services with funds borrowed from the bank, store, or other business that issued the card]

credit history

[credit history: the record of a person's borrowing and repayment of loans]

Credit

[credit: an arrangement that allows a person to buy something with borrowed money and pay for it later or over time]

currency

[currency: bills and coins circulating in the economy]

debit card

[debit card: a card authorizing the user to access his or her own funds on deposit in a bank account; a debit card can be used to buy goods and services or to withdraw money directly from an account]

diversification

[diversification: a method of lowering risk by investing in a wide variety of financial assets]

fiat money

[fiat money: currency not backed by gold or silver; all paper money today is fiat money] .

financial institutions

[financial institution: a firm that deals mainly with money, as opposed to goods and services; example include banks and stock brokerages]

financial intermediary

[financial intermediary: a business, such as a bank, that brings together savers (sellers) and borrowers (buyers) in financial markets]

fractional reserve banking

[fractional reserve banking: a system in which banks keep a portion of deposits in reserve and make loans with the rest]