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Loe > ch 11 econ > Flashcards

ch 11 econ Flashcards

1
Q

the network of structures and mechanisms that allows the transfer of money between savers and borrowers

A

financial systems

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2
Q

a claim on the property or income of a borrower

A

financial assets

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3
Q

an institution that helps channel funds from savers to borrowers

A

financial intermediary

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4
Q

an organization that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets

A

mutual fund

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5
Q

a private investment organization that employs risky strategies that often made huge profits for investors

A

hedge fund

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6
Q

the strategy of spreading out investments to reduce risk

A

diversification

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7
Q

a collection of financial assets

A

portfolio

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8
Q

an investment report that provides information to potential investors

A

prospectus

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9
Q

the money an investor receives above and beyond the sum of money initially invested

A

return

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10
Q

the interest rate that a bond issuer will pay to the bondholder

A

coupon rate

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11
Q

the time at which payment to a bondholder is due

A

maturity

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12
Q

a bonds stated value, to be paid to the bondholder at maturity

A

par value

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13
Q

the annual rate of return on a bond if the bond is held to maturity

A

yield

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14
Q

a low-denomination bond issued by the United States government

A

savings bond

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15
Q

a bond that protects the investor against inflation by its linkage to an index of inflation

A

inflation-indexed bond

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16
Q

a bond issued by a state or local government or a municipality to finance a public project

A

municipal bond

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17
Q

a bond issued by a corporation to help raise money for expansion

A

corporate bond

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18
Q

a bond with high risk and potentially high yield

A

junk bond

19
Q

a market in which money is lent for periods longer than a year

A

capital market

20
Q

a market in which money is lent for periods of one year or less

A

money market

21
Q

a market for selling financial assets that can be redeemed only by the original holder

A

primary market

22
Q

a market for reselling financial assets

A

secondary market

23
Q

a portion of stock

A

share

24
Q

the difference between the selling price and purchase price that results in a financial gain for the seller

A

capital gain

25
Q

the difference between the selling price and purchase price that results in a financial loss for the seller

A

capital loss

26
Q

the division of each single share3 of a company’s stock into more than one share

A

stock split

27
Q

a person who links buyers and sellers of stock

A

stockbroker

28
Q

a business that specializes in trading stocks

A

brokerage firm

29
Q

a market for buying and selliong stock

A

stock exchange

30
Q

contracts to buy or sell commodities at a particular date in the future at a price specified today

A

futures

31
Q

contracts that give investors the right to buy or sell stock and other financial assets at a particular price until a specified future date

A

options

32
Q

a contract for buying stock at a particular price euntil a specified future date

A

call option

33
Q

a contract for selling stock at a particular price until a specified future date

A

put option

34
Q

a steady rise in the stock market over a period of time

A

bull market

35
Q

a steady drop or stagnation in the stock market over a period of time

A

bear market

36
Q

the practice of making high-risk investments with borrowed money in hopes of getting a big return

A

speculation

37
Q

list and define the three parts of the financial system

A

the buyer
the seller
the financial intermediaries

38
Q

list and describe the three advantages of using financial intermediaries

A

sharing risks
providing information
providing liquidity

39
Q

what are the two primary investment trade-offs?

A

liquidity and risks

40
Q

list and define the three components of a bond

A

coupon rate, maturity, par value

41
Q

what is the difference between money market funds and certificates of deposits

A

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

42
Q

list and explain the four types of investment risks. how does diversification lessen these risks.

A

credit risk, liquidity risk, inflation rate risk, time risk

it spreads the risk over varied investments.

43
Q

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

A

investment

Loe (15 decks)

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