Economics - Topic 6 - Money, Banking, and Financial Markets
Federal Reserve Banks
12 regional banks of the Federal Reserve System
national bank
a bank chartered by the federal government
member banks
a bank that belongs to the Federal Reserve System
central bank
a bank that can lend to other banks in times of need
fractional reserve banking
a banking system that keeps only a fraction of funds on hand and lends out the remainder
corporate bond
a bond issued by a corporation to help raise money for expansion
municipal bond
a bond issued by a state or local government or by a municipality to finance a public project
inflation-indexed bond
a bond that protects the investor against inflation by its linkage to an index of inflation
junk bond
a bond with high risk and potentially high yield
par value
a bond's stated value, to be paid to the bondholder at maturity
brokerage firm
a business that specializes in trading stocks
credit card
a card entitling its owner to buy goods and services based on the owner's promise to pay for those goods and services
debit card
a card used to withdraw money from a bank account
financial asset
a claim on the property of income of a borrower
portfolio
a collection of financial assets
bank holding company
a company that owns more than one bank
call option
a contract for buying stock at a particular price until a specified future date
put option
a contract for selling stock at a particular price until a specified future date
money market mutual funds
a fund that pools money from small savers to purchase short-term government and corporate securities
short-term loans
a loan scheduled to be repaid in less than a year
savings bond
a low-denomination bond issued by the United States government
stock exchange
a market for buying and selling stock
secondary market
a market for reselling financial assets
primary market
a market for selling financial assets that be redeemed only by the original holder
capital market
a market in which money is lent for periods longer than a year
money market
a market in which money is lent for periods of one year or less
unit of account
a means for comparing the values of goods and services
gold standard
a monetary system in which paper money and coins had the same value as a certain amount of gold
greenbacks
a paper currency issued during the Civil War
creditor
a person or institution to whom money is owed
stockbroker
a person who links buyers and sellers of stock
share
a portion of stock
hedge fund
a private investment organization that employs risky strategies to try to make huge profits for investors
mortgage
a specific type of loan that is used to buy real estate
bear market
a steady drop or stagnation in the stock market over a period of time
bull market
a steady rise in the stock market over a period of time
bank runs
a widespread panic in which many people try to redeem their paper money at the same time
money supply
all the money available in the United States economy
bank
an institution for receiving, keeping, and lending money
financial intermediary
an institution that helps channel funds from savers to borrowers
prospectus
an investment report that provides information to potential investors
mutual fund
an organization that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets
medium of exchange
anything that is used to determine value during the exchange of goods and services
money
anything that serves as a medium of exchange, a unit of account, and a store of value
specie
coined money, usually gold or silver, used to back paper money
currency
coins and paper bills used as money
options
contracts that give investors the right to buy or sell stocks and other financial assets at a particular price until a specified future date
futures
contracts to buy or sell commodities at a particular date in the future at a price specified today
reserves
deposits that a bank keeps readily available as opposed to lending them out
Federal Reserve Board
main governing body of the Federal Reserve System
demand deposits
money in a checking account that can be paid "on demand" or at any time
fiat money
objects that have value because the government has decreed that they are an acceptable means to pay debts
representative money
objects that have value because the holder can exchange them for something else of value
commodity money
objects that have value in and of themselves and that can also be used as money
store of value
something that keeps its value if it is stored rather than spent
Federal Reserve Notes
term used to describe the paper currency circulated in the United States
liquidity
the ability to be used as, or directly converted into, cash
investment
the act or redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit
monetary policy
the actions that the Federal Reserve System takes to influence the level of real GDP and the rate of inflation in the economy
principal
the amount of money borrowed
reserve requirements
the amount of reserves that banks are required to keep on hand
yield
the annual rate of return on a bond if the bond is held to maturity
capital gain
the difference between the selling price and purchasing price that results in a financial gain for the seller
capital loss
the difference between the selling price and purchasing price that results in a financial loss for the seller
barter
the direct exchange of one set of goods or services for another
stock split
the division of each single share of a company's stock into more than one share
coupon-rate
the interest rate that a bond issuer will pay to a bond holder
federal funds rate
the interest rate that banks charge each other for loans
discount rate
the interest rate that the Federal Reserve charges commercial banks for loans
return
the money an investor receives above and beyond the sum of money initially invested
financial system
the network of structures and mechanisms that allow the transfer of money between savers and borrowers
speculation
the practice of making high-risk investments with borrowed money in hopes of getting a big return
interest
the price paid for the use of borrowed money
check clearing
the process by which banks record whose account gives up money and whose account receives money when a customer writes a check
foreclosures
the seizure of property from borrowers who are unable to pay their loans
diversification
the strategy of spreading out investments to reduce risks
maturity
the time at which payment to a bondholder is due
default
to fail to pay back a loan
