ch 11 econ Flashcards
the network of structures and mechanisms that allows the transfer of money between savers and borrowers
financial systems
a claim on the property or income of a borrower
financial assets
an institution that helps channel funds from savers to borrowers
financial intermediary
an organization that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets
mutual fund
a private investment organization that employs risky strategies that often made huge profits for investors
hedge fund
the strategy of spreading out investments to reduce risk
diversification
a collection of financial assets
portfolio
an investment report that provides information to potential investors
prospectus
the money an investor receives above and beyond the sum of money initially invested
return
the interest rate that a bond issuer will pay to the bondholder
coupon rate
the time at which payment to a bondholder is due
maturity
a bonds stated value, to be paid to the bondholder at maturity
par value
the annual rate of return on a bond if the bond is held to maturity
yield
a low-denomination bond issued by the United States government
savings bond
a bond that protects the investor against inflation by its linkage to an index of inflation
inflation-indexed bond
a bond issued by a state or local government or a municipality to finance a public project
municipal bond
a bond issued by a corporation to help raise money for expansion
corporate bond
a bond with high risk and potentially high yield
junk bond
a market in which money is lent for periods longer than a year
capital market
a market in which money is lent for periods of one year or less
money market
a market for selling financial assets that can be redeemed only by the original holder
primary market
a market for reselling financial assets
secondary market
a portion of stock
share
the difference between the selling price and purchase price that results in a financial gain for the seller
capital gain
the difference between the selling price and purchase price that results in a financial loss for the seller
capital loss
the division of each single share3 of a company’s stock into more than one share
stock split
a person who links buyers and sellers of stock
stockbroker
a business that specializes in trading stocks
brokerage firm
a market for buying and selliong stock
stock exchange
contracts to buy or sell commodities at a particular date in the future at a price specified today
futures
contracts that give investors the right to buy or sell stock and other financial assets at a particular price until a specified future date
options
a contract for buying stock at a particular price euntil a specified future date
call option
a contract for selling stock at a particular price until a specified future date
put option
a steady rise in the stock market over a period of time
bull market
a steady drop or stagnation in the stock market over a period of time
bear market
the practice of making high-risk investments with borrowed money in hopes of getting a big return
speculation
list and define the three parts of the financial system
the buyer
the seller
the financial intermediaries
list and describe the three advantages of using financial intermediaries
sharing risks
providing information
providing liquidity
what are the two primary investment trade-offs?
liquidity and risks
list and define the three components of a bond
coupon rate, maturity, par value
what is the difference between money market funds and certificates of deposits
mmf:
- allow the depositor to write a limited number of checks on the account
- interest rates are not fixed
cod:
- funds cannot be removed until the end of a certain period os time
- offer a fixed rate of interest
list and explain the four types of investment risks. how does diversification lessen these risks.
credit risk, liquidity risk, inflation rate risk, time risk
it spreads the risk over varied investments.
the act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit
investment
