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BANK/ECON > EXAM 1 > Flashcards

EXAM 1 Flashcards

1
Q

Costs associated with making a loan.

A

Transaction costs

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2
Q

Where funds are transferred from people and firms who have an excess of available funds to firms and people who have a need of funding.

A

Financial markets (Financial intermediation)

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3
Q

Anything that can be used to store wealth.

A

Asset

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4
Q

A claim on the issuer’s future income or assets.

A

Security (Financial Instrument)

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5
Q

A debt security that promises to make periodic payments for a specified time and then return principle.

A

Bond

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6
Q

Cost of borrowing or the price paid for the rental of money.

A

Interest rate

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7
Q

Represents a share of ownership in a corporation and that conveys voting rights in electing the corporate BOD.

A

Common stock

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8
Q

Shares of stock that have no voting rights, like bonds.

A

Preferred stock

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9
Q

The more liquid a market, the easier it is to buy and sell.

A

Ceteris Poribus

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10
Q

Institutions that borrow funds from people who have saved and make loans to other people.

A

Financial intermediaries

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11
Q

The development of new financial products and services.

  • Banks
  • Insurance companies
  • Finance companies
  • Pension funds
  • Mutual funds
A

Financial Innovation

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12
Q

The average price of goods and services in an economy. A measure of average prices in the economy.

A

Aggregate price level

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13
Q

The continual rise in the price level.

A

Inflation

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14
Q

The management of money supply and interest rates.

A

Monetary policy

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15
Q

The management of government spending and taxation.

A

Fiscal policy

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16
Q

Excess of expenditures over revenues.

A

Budget deficit

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17
Q

Excess of revenues over expenditures.

A

Budget surplus

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18
Q

When the government defaults on its debts by not paying.

A

“Hard” default

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19
Q

When the government prints money to pay off debt.

A

“Soft” default

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20
Q

Price at which the exchange occurs. If the exchange rate rises, the value of the domestic currency falls. If the exchange rate falls, the value of the domestic currency rises.

A

Exchange rate

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21
Q

The market value of all final goods and services produced in a country.

A

GDP

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22
Q

Total income of factors of production (land, labor, and capital) from producing goods and services in the economy during the course of the year. Equal to aggregate output.

A

Aggregate income

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23
Q

This indicates that causes are measured using current prices.

A

Nominal

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24
Q

What is the arbitrary base year for real GDP?

A

2005

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25
Q

This indicates that values are measured in terms of fixed prices. Constant prices.

A

Real

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26
Q

Nominal GDP/ Real GDP = ?

A

Implicit GDP deflator

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27
Q

What are the 3 measures used to find aggregate pricing?

A
  1. GDP deflator
  2. PCE deflator (preferred by the Fed)
  3. Consumer price index (CPI) (determined by the Bureau of Labor Statistics)
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28
Q

Nominal quantities * base year prices = ?

A

Real GDP

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29
Q

A measure of the price level, calculated by dividing nominal GDP by real GDP.

A

GDP deflator

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30
Q

The exchange of funds from saver to borrower directly.

A

Direct finance

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31
Q

When an intermediary facilitates the exchange of funds.

A

Indirect finance

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32
Q

Claim on assets and income of the issuer and traded as bills, notes, and bonds.

A

Debt

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33
Q

Ownership interest in a company and is traded like stocks. Residual claim on the assets and income of the issuer.

A

Equity

34
Q

(Asset life) Less than 1 year

A

Short-term

35
Q

(Asset life) 1 to 10 years

A

Intermediate-term

36
Q

(Asset life) Over 10 years

A

Long-term

37
Q

Banks that underwrite securities in primary markets.

A

Investment banks

38
Q

Valuing and underlying assets and selling all the securities associated with the offering.

A

Underwriting

39
Q

Dealer’s offer to pay = ?

A

Bid price

40
Q

Dealer’s offer to sell = ?

A

Ask price

41
Q

Exchange is centralized or decentralized?

A

Centralized

42
Q

OTC (over-the-counter) is centralized or decentralized?

A

Decentralized

43
Q

A certificate of deposit that is a bank deposit with a specific maturity.

A

Negotiable CD

44
Q

An unsecured, short-term debt instrument issued by a corporation, for financing current receivables/payables. Usually mature up to 270 days.

A

Commercial paper

45
Q

Overnight borrowings of reserves between banks and other entities to maintain their bank reserves for the Federal Reserve.

A

Federal funds

46
Q

Type of security that signifies ownership in a corporation and represents a claim on a part of the corporation’s assets and earnings.

A

Corporate stocks.

47
Q

A loan that uses real estate as collateral.

A

Residential mortgages

48
Q

A debt security issued by a corporation.

A

Corporate bonds

49
Q

Medium-term (treasury notes) and long-term (treasury bonds) issued by the U.S. treasury; coupon bonds.

A

U.S. Treasury securities

50
Q

Debt obligations that are issued by U.S. government-sponsored entities. (FNMA, FHLB, and SLMA)

A

U.S. Government Agency securities

51
Q

A municipal bond that is a debt security issued by a state, municipality, or county to finance capital expenditures.

A

State and local government bonds

52
Q

A commercial loan that is a debt-based funding arrangement between a business and a financial institute.

A

Bank commercial loans

53
Q

A loan with fixed terms, issued by a bank that may be used for any purpose.

A

Consumer loans

54
Q

Mortgage loan for income-earning properties.

A

Commercial and Farm mortgages

55
Q

Bonds sold in a foreign country and denominated in that countries currency.

A

Foreign bonds

56
Q

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

A

Eurobond

57
Q

Foreign currencies deposited in banks outside the home country.

A

Euro currencies

58
Q

The cost advantage that arises with increased output of a product. (Relationship between the quantity produced and per-unit fixed costs)

A

Economies of scale

59
Q

Financial intermediaries can pool the resources of their depositors and thereby create a more diverse portfolio of assets, which in turn reduces the overall risk to depositors.

A

Risk reduction

60
Q

The FDIC insures $______ for each depositor at a bank.

A

250,000

61
Q

Before transactions, institutes try to avoid selecting risky borrowers.

A

Adverse selection

62
Q

After transactions, institutes ensure the borrower will not engage in activities that will prevent them from repaying their loan.

A

Moral hazard

63
Q

Secondary markets make financial instruments more _____.

A

Liquid

64
Q

40 or so dealers establish a market in securities by standing ready to buy and sell….. ?

A

U.S. government bonds

65
Q

Why is there growth in foreign financial markets?

A

An increase in the pool of savings in foreign countries

66
Q

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

A

Money

67
Q

Total collection of pieces of property that serve to store value.

A

Wealth

68
Q

Eliminates the trouble of finding a double coincidence of needs; promotes specialization.

A

Medium of exchange.

69
Q

What are the 5 requirements to be considered a medium of change?

A
  1. Easily standardized
  2. Widely accepted
  3. Divisible
  4. Easy to carry
  5. Won’t deteriorate quickly
70
Q

Used to measure value in the economy; reduces transition costs.

A

Unit of account

71
Q

Used to save purchasing power over time, assets serve this function.

A

Store of value

72
Q

Valuable, easily standardized, and divisible commodities. (ex: Precious metals, cigarettes)

A

Commodity money

73
Q

Paper money decreed by the government as legal tender.

A

Fiat money

74
Q

An instruction to your bank to transfer money from your account.

A

Check/s

75
Q

Online payment of bills.

A

Electronic payment

76
Q

Debit card, stored-value card, e-cash.

A

E-money

77
Q

Created by decentralized users in 2009. Functions as a medium of exchange, but less effective.

A

Bitcoin

78
Q

Most liquid assets. Currency + Traveler’s checks + demand deposits and other checkable deposits

A

M1 money supply

79
Q

Aggregate money supply, but not as liquid. Small-denomination time deposits + savings deposits and money market deposit accounts + money market mutual funds.

A

M2 money supply

80
Q

Inflation subjects savings to _____.

A

Risks

BANK/ECON (5 decks)

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