Chapter 1 Flashcards
What is a security?
A claim on the issuer’s future income or assets
What are financial markets?
Markets in which funds are transferred from people who have an excess of available funds to people who have a shortage
What is a bond?
A debt security that promises to make payments periodically for a specified period of time
Why are bonds important?
It enables corporations and governments to borrow to finance their activities and it is where interest rates are determined
What is an interest rate?
The cost of borrowing or the price paid for rental fund
Why are interest rates important?
Personal-high interest rates could deter you from making some purchases
Might encourage you to save because you ,ale more income from savings interest
General-impact on health of economy because they effect consumers willingness to spend or save and a business’ decisions
What is true of interest rates on three month treasury bills?
Fluctuates more than other interest rates and is lower on average
What is true of the interest rates on Baa corporate bonds?
High than other interest rates
What is common stock?
Same as stock
A share of ownership in a corporation
What is “the market”?
The stock market
Where claims on the earnings and assets are traded
Most follower financial market
Are stock prices volatile?
Yes
What are financial intermediaries?
Institutions that borrow funds from people who have saved and in turn make loans to others
What is a financial crisis?
Major disruption in financial markets that are characterized by sharp declines in asset prices and the failure of many financial and non financial firms
What are banks?
Financial institutions that accept deposits and make loans
What are included under the term bank?
Commercial banks, savings and loan associations, mutual savings banks, and credit unions
What is the largest financial intermediary in this country?
Banks
What is financial innovation?
Development of new financial products and services
Makes finial systems more efficient
Can sometimes have bad results
What is e-finance?
Ability to deliver financial services electronically
What is money?
Money supply
Anything generally accepted in payment for goods and services or in payment of debt
What is aggregate output?
Total production of goods and services
What is unemployment rate?
Percentage of available labor force unemployed
What is the business cycle?
Upward and downward movement of aggregate output produced in the economy
What is a recession?
Period of declining aggregate output
What is monetary theory?
Theory relating quantity of money and monetary policy to changes in aggregate economic activity and inflation
What is aggregate price level?
Average price of goods and services in the economy
What is inflation?
A continual increase in the price level
It affects businesses, government, and individuals
What causes inflation?
They is a connection between price level and money supply, continued rise in money supply may lead to increased inflation
What is inflation rate?
Rate of change of the price level, usually measured as a percentage change per year
Is there a relationship between money and interest rates?
Yes, they are directly correlated, however it has been less clear cut since 1980
What is monetary policy?
Management of money and interest rates
What is the central bank responsible for?
The conduct of the nation’s monetary policy
Who is the United States’ central bank?
The federal reserve
What is fiscal policy?
Decisions about government spending and taxation
What is a budget deficit?
Excess government expenditures over tax revenues for a particular time period
What is a budget surplus?
When tax revenues exceed government expenditures
What is GDP?
A measure of aggregate output
Market value of all final goods and services produced in a country during a year
What must be done when funds are transferred from one country to another?
Currency must be transferred from that of origin to the destination
What is the foreign exchange market?
Where the conversion of currency takes place as funds transfer among countries
What is foreign exchange rate?
Price of one country’s currency in terms of another’s
What affect does a change in exchange rate have on citizens?
Affects costs of imports
What is aggregate income?
Total income of factors of production from producing goods and services in the economy during the course of the year
What is nominal?
Values measured using current prices
What is real?
Adjusted based on a base year
What is gdp deflator?
Nominal/real gdp
