Exercise 2 Flashcards
(36 cards)
Economic policy affects:
the entire financial system
More than half of all US dollars can be found
in foreign countries
The expected rate of change in prices is known as the
expected inflation rate
During the 2000s, banks became complacent about making mortgage loans because:
the banks counted on housing prices to keep appreciating
In the long run, the only economic variable that the Fed can affect is:
inflation
An equation that relates the interest rate to the output gap and the inflation rate is
the Taylor rule
Another name for a debt security is a:
bond
In the US, the biggest issuers of securities are:
business firms
The owner of a financial security is known as
a lender
Which of the following is true of debt securities?
A debt security specifies a particular maturity date
A company that takes short term deposits and makes long term loans is a
financial intermediary
Owning a variety of securities means engaging in
diversification
The market in which a security is sold from one personal investor to another is know as
the secondary market
US gov borrows by auctioning its bonds in the
primary market
If the demand for a company’s bonds decreases, supply remaining unchanged,
its interest rate will rise while its equilibrium quantity will fall
Risk that cannot be eliminated by diversification is referred to as
market risk
The ease or difficulty with which you can buy or sell a security in the secondary market when you want to without incurring significant costs is known as:
liquidity
A US gov savings bond is an example of a
nonmarketable security
Because these securities are more liquid and generally have smaller price fluctuations, corporations and banks use the _____ securities to earn interest on temporary surplus funds
money market
US Treasury bills pay no interest but are sold at a ____. That is, you will pay a lower price than the amount you receive at maturity.
Discount
A short term debt instrument issued by well-known corporations is called
commercial paper
The most liquid securities traded in the capital market are:
treasury bonds
Prices of money market instruments undergo the least price fluctuations because of
the short terms to maturity for the securities
Functions of money
Medium of exchange
unit of account
store of value
