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Econ 305 > econ 305 > Flashcards

econ 305 Flashcards

1
Q

financial market

A

a market in which funds are transferred from people who have excess funds to people who have shortages

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2
Q

security

A

claim on the issuer’s future income or asset

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3
Q

bond

A

debt security that promises to make periodic payments for a specified period of time

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4
Q

interest rate

A

cost of borrowing

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5
Q

stocks

A

represents a share of ownership in a corporation

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6
Q

financial intermediaries

A

institutions that borrow funds from people who have saved and in turn make loan to people who need funds

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7
Q

banks

A

financial institutions that accept deposits and make loans

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8
Q

financial institutions

A

includes insurance companies, finance companies, pension funds, mutual funds, and investment banks

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9
Q

financial innovation

A

the development of new financial products and services (crypto currency)

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10
Q

money

A

anything that is generally accepted as payment for goods or services or in the repayment of debts

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11
Q

aggregate price level

A

the average price of goods and services in an economy

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12
Q

inflation

A

continuous increases in price levels

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13
Q

monetary policy

A

the management of money and interest rates

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14
Q

fiscal policy

A

involves decisions about government spending and taxation

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15
Q

foreign exchange market

A

converts a country’s currency to another country’s currency

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16
Q

foreign exchange rate

A

the price of one country’s currency in terms of another’s

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17
Q

function of financial markets

A

channelling funds from households, firms that have saved surplus funds to those who are in need of funds

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18
Q

maturity of debt instrument

A

number of years until the instrument’s expiration date

19
Q

primary market

A

financial market in which new issues of security, such as bond or stock are sold to initial buyers

20
Q

secondary market

A

a financial market in which securities that have been previously issued can be resolved

21
Q

brokers

A

agents of investors who match buyers with sellers of securities

22
Q

money market

A

financial market in which short-term debt instruments are traded

23
Q

capital market

A

financial market in which longer-term debt instruments and equity instruments are traded

24
Q

mortgages

A

loans to households or firms to purchase land, housing, which that land itself serves as collateral

25
Q

mortgage-backed securities

A

bond-like debt instruments backed by a bundle of individual mortgages

26
Q

foreign bonds

A

bonds that are sold in a foreign country and use that country’s currency

27
Q

eurobonds

A

a bond denominated in a currency other than that of the country in which it is sold

28
Q

eurocurrency

A

a variant of Eurobonds and are foreign currencies deposited in banks outside the home country

29
Q

transaction costs

A

the time and money spent in carrying out financial transactions. Are a major problem for people who have excess funds to lend

30
Q

moral hazard

A

the problem created by asymmetric information after the transaction occurs

31
Q

economies of scope

A

says that they can lower the cost of information production for each service by applying one information to many different services

32
Q

conflict of interest

A

since banks can provide multiple services, it may incentivize individuals to conceal information or provide misleading information

33
Q

currency

A

consist of paper bills and coins. Currency is one form of money

34
Q

commodity money

A

things such as gold and silver and was used many years ago

35
Q

fiat money

A

paper currency decreed by governments as legal tender but not convertible into coins or precious metal

36
Q

cash flow

A

different debt instruments have different streams of cash payments

37
Q

present value (PV)

A

the amount you need to give up today to have F dollars in the future

38
Q

future value (FV)

A

what you must give up one year from now to have P dollars now

39
Q

yield to maturity

A

the interest rate that equates the present value of cash flow payments received from a debt instrument with its value today

40
Q

rate of return

A

the amount of each payment to the owner plus the change in the security value

41
Q

interest rate risk

A

the risk level associated with an asset’s return that results from interest-rate changes

42
Q

four types of credit market instruments

A

simple loan, fixed payment loan, coupon bond, discount bond

43
Q

4 factors to consider when buying an asset

A

risk, liquidity, wealth, expected return

Econ 305 (1 decks)

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