Chapter one Flashcards
What are financial markets
Financial markets are markets in which funds are transferred from people and firms who have an excess of available funds to people who need funds.
What has a direct effect on the performance of the economy
Financial markets
Define a security
Is a financial instrument that has a claim on the issuer’s future income or assets. (subject to ownership)
Define a bond
A bond is a debt security that promises to make payments periodically for a specified period.
Define interest rate
Interest rate is the cost of borrowing or the price paid for rental of funds
Define common stock
It represents a share of ownership in a corporation
Define a share of stock
It is a claim on the residual earnings and assets of the corporation
Where are the claims on the earnings of corporations traded?
The stock market
What plays an important factor in business investment and consumers consumption decisions
The stock market
Define financial intermediaries
Institutions that borrow funds from people who have saved and in turn make loans to other people who need funds
Examples of financial intermediaries
- Banks
- Insurance Companies
- Finance Companies
- Pension funds
- Mutual funds
- Investment Companies
Define financial innovation
The development of new financial products and services
Financial systems get more efficient thanks to ___________
Financial innovation
Define e-finance
The ability to deliver financial services electronically
Financial crises are major disruptions in financial markets that are characterised by _______
- Sharp decline in asset prices
- The failure of many financial and nonfinancial firms
Financial crises have been a feature of ________ economies
Capitalist
Define money
Is defined as anything generally accepted as payment for goods or services or in the repayment of debts.
What plays an important role in generating business cycles?
Money
According to the Monetary Theory, Changes in the money supply are related to
changes in Aggregate economic activity and price level
Define inflation
A continual rise in the price level.
Define the aggregate price level
It is the average price of goods and services in an economy.
What is the rate of change of the price level ?
Inflation Rate
In _____, The rate of money growth and interest rate on long-term Treasury bonds were closely tied.
1980
Money growth is an important determinant of _______
Interest rates
Interest rates are the ________
Prices of money
Define monetary policy
It is the management of the money supply and interest rates
fiscal policy is for
Dealing with government spending and taxation
Define budget deficit
Is the excess of expenditures over revenues for a particular year
Define budget surplus
Is the excess of revenues over expenditures for a particular year
Any deficit must be financed by ________
Borrowing
Define
foreign exchange market
Where funds are converted from one currency into another
Define
foreign exchange rate
Is the price of one currency in terms of another currency
What market determines the foreign exchange rate
Foreign exchange market
