4.1 Financial Assets

What is financial intermediary?

an institution that transforms funds gathered from many individuals into financial assets.

What is financial risk?

an uncertainty about future outcomes that involve financial losses or gains

What is liquidity?

how easily the asset can be turned into cash

What does obtaining a loan from a bank avoid?

it would avoid large transaction costs because it involves only a single borrower and a single lender.

What is the financial sector?

network or institutions that link borrowers and lender

What is transaction costs?

they are the expenses of actually putting together and executing a deal.

What are the important kinds of financial loans?

Loans, stocks, bonds, and bank deposits

What are examples of financial intermediary?

Mutual funds, pensions funds, life insurance companies, and banks.

What is a physical asset?

a claim on a tangible object, such as a preexisting house or a piece of equipment.

What is a loan?

a lending agreement between an individual lender and an individual borrower. individual

What is a financial asset?

a paper claim that entitles the buyer to future income from the seller

What is a liability?

a requirement to pay money in the future

What is a stock?

a share in ownership of a company

What is wealth?

an accumulation of savings through the purchase of assets that occurs over time

What is capital outflow?

when Americans buy financial assets in other countries.

What is capital inflow?

when other nations buy financial assets from the US.