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]