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FINANCIAL MARKETS > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

Is an item or commodity that is generally accepted as a means of payment of goods and services or for payment of debt, and that serves as an asset to its holder

A

Money

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2
Q

an economic unit that functions as a generally recognized medium of exchange for transactional purposes in an economy

A

Money

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3
Q

Function of Money:

It is accepted freely in exchange for all other goods

A

Medium of Exchange

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4
Q

Function of Money

acts as a common measure of value; it is a unit of account and a standard of measurement

A

Measure of Value

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5
Q

Function of Money

money is a convenient form to store wealth

A

Store of Value

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6
Q

Function of Money

barter system is very inconvenient so the introduction of money has got over the difficulty of barter

A

Medium of Exchange

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7
Q

Function of Money

it forms the basis for credit transactions

A

Standard of Deferred Payment

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8
Q

Is the total value of money available in an economy at a point of time

A

Money Supply

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9
Q

It includes all coins and paper money issued by the government and the banks

A

Currency

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10
Q

Four key measures for the Money Supply

A

M1. The narrow Measure
M2. Intermediate Measure
M3. Broad Measure
M4. (L) Broadest Measure

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11
Q

Key Measure

It includes all currency in circulation, traveler’s checks, demand deposits at commercial banks held by the public and other checkable deposits

A

M1. Narrow Measure

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12
Q

Key Measure

It refers primarily to money used as a store of value

A

M2. Intermediate Measure

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13
Q

Key Measure

Includes everything in M2 as well as large time deposits, balances in institutional money market funds, and term repurchase agreements

A

M3. Broad Measure

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14
Q

Key Measure

In addition to everything in M3, this includes liquid and near liquid assets.

A

M4. (L) Broadest Measure

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15
Q

In monetary economics, it is the desired holding of financial assets in the form of money, that is, cash or bank deposits rather than investments

A

The Demand for Money

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16
Q

3 several factor of Demand Money

A

Level of income
Interest Rates and Inflation
Uncertainty about the future

17
Q

People prefer to be liquid for day-to-day expenses. The amount of liquidity desired depends on the level of income, the higher the income, the more money is required for increased spending.

A

Transaction Demand

18
Q

Is the demand for liquidity to cover unforeseen expenditure such as an accident or health emergency. The demand for this type of money increases as the income level increases

A

Precautionary demand

19
Q

The demand to take advantage of future changes in the interest rate or bond prices

A

Speculative Demand

20
Q

The lower the rate of interest, the lower this demand for money and vice versa

A

Speculative Demand

21
Q

This theory states that money supply and price level in an economy are in direct proportion to one another

A

Quantity Theory

22
Q

It is the mathematical expression of the quantity theory of money

A

The Equation of Exchange

23
Q

The Equation of Exchange

A

M x V = P x Y

24
Q

The cost of using money

A

Interest

25
Q

Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt

A

Interest

26
Q

It is the amount a lender charges for the use of assets expressed as a percentage of the principal

A

Interest Rates

27
Q

It is the interest rate that is earned at a bank or credit union from savings account or certificate of deposit.

A

Annual Percentage Yield (APY)

28
Q

2 main sources of funds

A

Cost of Equity

Cost of Loans

29
Q

The rate at which the quantity of money demanded is equal to the quantity of money supplied

A

Equilibrium Interest Rates

30
Q

Refers to the interest rate before taking inflation into account

A

Nominal Interest Rate

31
Q

Is the rate of interest an investor, saver, or lender receives after allowing for inflation

A

Real Interest Rate

32
Q

The compensation, over and above inflation, that a lender demands to lend his money

A

Pure Interest or Real Interest

33
Q

Change in the level of prices

A

Inflation

34
Q

The compensation that a lender receives for investing funds in something that is difficult to sell

A

Liquidity RIsk

35
Q

The risk that the loan or bond won’t be repaid as scheduled, or not at all

A

Credit Risk

FINANCIAL MARKETS (3 decks)

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