Ch 5 Flashcards
Commercial Bank
provide an exchange for those who have money, to lend it to those who need money.
Fixed-Income Security
An investment that provides periodic interest payments and a return of principal maturity
interest
an amount charged by a lender to borrower for the use of assests
Principal
the original sum of money lent or invested
Maturity Date
when it must be paid by
Federal Reserve
is the central bank of the United States, oftentimes referred to simply as the Fed.
Monetary Policy
one of the ways the US gov attempts to control the economy
4 primary duties of the Fed
- control the supply and demand of money by setting interest rates
- regulate banks and protect the rights of bank customers
- maintain the stability of America’s financial system
- provide financial servies to the US government
Reserve Requirement
the level of funds a commerical bank must hold to meet deposit liabilites
Inflation
sustained increased in the general price level of goods and services
Discount Rate (Federal Reserve)
interest rate charges to commercial banks for overnight loans received from the feds
Federal Funds Rate
average interest rate that banks charge each other for overnight reserve loans
Open Market Operations
are the Fed’s buying and selling of government securities in the “open market” in order to control the amount of money in the U.S. banking system.
tight monetary policy
With less money in the system, banks may have a more difficult time meeting reserve requirements, thus the fed funds rate is likely to increase
loose/easy monetary policy
When the Fed buys securities, more money is deposited at banks. Since banks have a greater supply of money to lend, this makes borrowing easier, and the fed funds rate is likely to decline.
