Chapter 1 & 2 Flashcards

1
Q

are crucial to a healthy economy.

A

Well-functioning financial markets and financial intermediaries

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2
Q

Financial markets

A

1) Channel funds from savers to spenders which… 2) promotes the efficient allocation of capital which…3) contributes to higher production and greater efficiency.

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3
Q

Borrowers sell securities (stock or bond) directly to savers in the financial market. A security is a liability (debt) for the seller and an asset for the buyer.

A

Direct Finance

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4
Q

The financial intermediary borrows funds from saver and makes loans to borrowers. As a result, financial intermediaries incur risk.

A

Indirect Finance

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5
Q

new issues of a security are sold to initial buyers

A

Primary market

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6
Q

where previously issued securities are traded

A

Secondary market

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7
Q

a)Make securities more liquid; liquidity– how easily and quickly an asset can be converted to cash without losing significant value.
b)It’s where price is determined for securities sold in the primary market.

A

Secondary market

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8
Q

where longer-term debt instruments (maturity of 1 year or greater) and equity instruments are traded

A

Capital market

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9
Q

where only short-term debt instruments (maturity less than 1year) are traded

A

Money market

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10
Q

U.S. Treasury Bills–used to finance the federal government, most liquid of the money market instruments, low risk of default, no interest payments but are sold at a discount (price below par or face value)

A

Money Market Instruments

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11
Q

has declined before almost every recession

A

Monetary growth

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