Chapter 15 Flashcards
Medium of exchange
Any item that sellers will accept as payment
Money
Any medium that is universally accepted in an economy both by sellers of goods and services as payment for those goods and services and by creditors as payment for debts
Barter
The direct exchange of goods and services for other goods and services without the use of money
Unit of accounting
A measure by which prices are expressed; the common denominator of the price system; a central property of money
Store of value
The ability to hold value over time; a necessary property of money
Standard of deferred payment
A promptly of an item that makes it desirable for use as a means of settling debts maturing in the future; an essential property of money
Liquidity
The degree to which an asset can be acquired or disposed of without much danger of any intervening loss in nominal values and with small transaction costs. Money is he most liquid asset
Transactions deposits
Check able and debatable account balances in commercial banks and other types of financial institutions, such as credit unions and mutual savings banks; any accounts in financial institutions from which you can easily transmit debit-card and check payments without many restrictions
Fiduciary monetary system
A system in which money is issued by the government and it’s value is based uniquely on the public’s faith that the currency represents command over goods and services
Money supply
The amount of money in circulation
Transactions approach
A method of measuring the money supply by looking at money as a medium of exchange
Liquidity approach
A method of measuring the money supply by looking at money as a temporary store of value
M1
The money supply, taken as the total value of currency plus transactions deposits plus traveler’s checks not issued by banks
Thrift institutions
Financial institutions that receive most of their funds from the savings of the public; they include savings banks, savings and loan associations, and credit unions
Traveler’s checks
Financial instruments obtained from a bank or a non-banking organization and signed during purchase that can be used as cash upon a second signature by the purchaser
Near moneys
Assets that are almost money. They have a high degree of liquidity and this can be easily converted into money without loss in value. Time deposits are an example.
M2
M1 plus (1) savings and small-denomination time deposits at all depository institutions, (2) balances in retail money market mutual funds, and (3) money market deposit accounts (MMDAs)
Savings deposits
Interest-earning funds that can be withdrawn at any time without payment of a penalty
Depository institutions
Financial institutions that accept deposits from savers and lend funds from those deposits out at interest
Money market deposit accounts (MMDAs)
Accounts issued by banks yielding a market rate of interest with a minimum balance requirement and a limit on transactions. They have no minimum maturity
Time deposit
A deposit in a financial institution that requires notice of intent to withdraw or must be left for an agreed period. Withdrawal of funds prior to the end of the agreed period may result in a penalty
Certificate of deposit (CD)
A time deposit with a fixed maturity date offered by banks and other financial institutions
Money market mutual funds
Funds obtained from the public that investment companies hold in common and use to acquire short-maturity credit instruments, such as certificates of deposit and securities sold by the U.S. Government
Central bank
A banker’s bank, usually an official institution that also serves as a country’s treasury’s bank. Central banks normally regulate commercial banks
Financial intermediation
The process by which financial institutions accept savings from business, households, and governments and lend the savings to other business, households, and governments
Financial intermediaries
Institutions that transfer funds between ultimate lenders (savers) and ultimate borrowers
Asymmetric information
Information possessed by one party in a financial transaction but not by the other party
Adverse selection
The likelihood that individuals who seek to borrow may use the funds that they receive for high-risk projects
Moral hazard
The possibility that a borrower might engage in riskier behavior after a loan has been obtained
Liabilities
Amounts owed; the legal claims against a business or household by non-owners
Assets
Amounts owned; all items to which a business or household holds legal claim
Payment intermediaries
Institutions that facilitate transfers of funds between depositors who hold transactions deposits with those institutions
Capital controls
Legal restrictions on the ability of a nation’s residents to hold and trade assets denominated in foreign currencies
International financial diversification
Financing investment projects in more than one country
Work index fund
A portfolio of bonds issued in various nations whose individual yields generally move in offsetting directions, thereby reducing the overall risk of losses
Universal banking
An environment in which banks face few or no restrictions on their powers to offer a full range of financial services and to own shares of stock in corporations
The Fed
The Federal Reserve System; the central bank of the United States
Lender of last resort
The Federal Reserve’s role as an institution that is willing and able to lend to a temporarily illiquid bank that is otherwise in good financial condition to prevent the bank’s illiquid position from leading to a general loss of confidence in that bank or in others
