Chapter 20 VOCAB

Question 1

anything generally accepted as a means of paying for goods and services; serves as a medium of exchange, a unit of accounting, a store of value, and a standard of deferred value

Answer 1

money

Question 2

the amount of money in circulation at any given point in time

Answer 2

money supply

Question 3

interest rate that member banks charge each other to borrow money overnight from the funds they keep in the Federal Reserve accounts

Answer 3

federal funds rate

Question 4

interest rate that member banks pay when they borrow funds from the Fed

Answer 4

discount rate

Question 5

sums of money, equal to a certain percentage of their deposits, that banks are legally required to keep on hand

Answer 5

reserves

Question 6

Federal agency responsible for protecting money in customer accounts and managing the transition of assets whenever a bank fails

Answer 6

Federal Deposit Insurance Corporation (FDIC)

Question 7

government-sponsored enterprise responsible for guaranteeing and funding home mortgages

Answer 7

Fannie Mae

Question 8

financial market in which mortgages are bought and sold, providing much of the funds that are loaned to home buyers

Answer 8

secondary mortgage market

Question 9

secondary mortgage institution similar to Fannie Mae

Answer 9

Freddic Mac

Question 10

financial institutions that accept deposits, offer various types of checking and saving accounts, and provide loans

Answer 10

commercial banks

Question 11

banks that provide financial services to consumers

Answer 11

retail banks

Question 12

banks that provide financial services to businesses

Answer 12

merchant banks; can also be refer to private equity management

Question 13

banking institution that offer deposit accounts and focus on offering home mortgage loans

Answer 13

thrift banks; also called trifts or savings and loan associations

Question 14

not-for-profit, member-owned cooperatives that offer deposit accounts and lending services to consumers and small businesses

Answer 14

credit unions

Question 15

banking services for wealthy individuals and families

Answer 15

private banking

Question 16

firms that offer a variety of services related to initial public stock offerings, mergers and acquisitions, and other investment matters

Answer 16

investment banks

Question 17

nonbank companies that use their own funds to offer mortgages

Answer 17

independent mortgage companies

Question 18

nonbank companies that initiate loans on behalf of a mortgage lender in exchange for a fee

Answer 18

mortgage brokers

Question 19

nonbank institutions that lend money to consumers and businesses for cars and other vehicles, home improvements, expansion, purchases, and other purposes

Answer 19

finance companies

Question 20

companies that offer opinions about the creditworthiness of borrowers and of specific investments

Answer 20

credit rating agencies

Question 21

market situation in which frenzied demand for an asset pushes the price of that asset far beyond its true economic value

Answer 21

bubble

Question 22

the percentage of an asset’s market value that a lender is willing to finance when offering a loan; the rest of the purchase price has to be paid by the buyer as a down payment

Answer 22

loan-to-value (LTV)

Question 23

mortgage that features variable interest rates over the life of the loan

Answer 23

adjustable rate mortgage (ARM)

Question 24

type of ARM that lets borrowers choose from several repayment options

Answer 24

option ARM

Question 25

payment situation in which the balance owed on a loan increases over time rather than decreases

Answer 25

negative amortization

Question 26

home loans for borrowers with low credit scores

Answer 26

subprime mortgages

Question 27

situation in which borrowers stop making payments on a loan

Answer 27

default

Question 28

process in which debts such as mortgages are pooled together and transformed into investments

Answer 28

securitization

Question 29

credit derivatives based on auto loans, credit card debts, and other loan assets

Answer 29

asset-backed securities (ABSs)

Question 30

credit derivatives based on home mortgages

Answer 30

mortgage-backed securites (MBSs)

Question 31

lenders taking possession of homes after borrowers default on their payments

Answer 31

foreclosures

Question 32

severe shortage of liquidity throughout a sector of the economy or the entire economy, during which companies can’t get enough cash to meet their operating needs

Answer 32

liquidity crisis

Question 33

situation in which credit has become so scarce that it is virtually unavailable, at any cost, to most potential borrowers

Answer 33

credit freeze

Question 34

home loans offered to the most creditworthy customers

Answer 34

prime mortgage

Question 35

the central banking system of the United States; responsible for regulating banks and implementing monetary policy

Answer 35

Federal Reserve System