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BUS 149 > Lecture 2 > Flashcards

Lecture 2 Flashcards

1
Q

Mortgage back security

A

a type of bond representing snd investment in a pool of mortgage loans

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2
Q

What are the two reasons that MBS are sold

A
  1. to free up capital
  2. so that investors can buy into mortgages
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3
Q

Economic units

A

groups viewed in the aggregate eg. individuals, business firms or governments

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4
Q

Surplus economic unit

A

generate more money that it spends resulting in excess money to save or invest

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5
Q

Deficit economic unit

A

generate less money than it spends resulting in a need for additional money

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6
Q

Savings investment process

A

involve direct or indirect transfer of individual savings to business firms in exchange for debt and equity securities of the firm

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7
Q

Direct transfer

A

savers directly use money to purchase the debt or equity securities of a firm in the financial markets

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8
Q

Indirect transfer (investment banks)

A

a financial institution (investment bank) facilitates the process by purchasing equities first then reselling them to savers

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9
Q

Indirect transfer (financial institutions)

A

savers deposit money into financial institutions (bank) then issue their own securities to the saver. they then lend money to a business firm in exchange for their securities

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10
Q

Monetary system

A

responsible for creating and transferring money

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11
Q

3 parts of the central bank

A
  1. federal reserve system
  2. board of governors
  3. federal reserve banks
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12
Q

2 responsibilities of the central bank

A
  1. defines and regulates money supply
  2. facilitates the transferring of money through check processing and clearing
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13
Q

What does the banking system do (4)

A
  1. creates money
  2. transfers money
  3. provides financial intermediation
  4. processes and clears checks
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14
Q

2 types of asset

A

real assets and financial assets

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15
Q

Real assets

A

direct ownership of land, buildings, equipment inventories durable goods and precious metals

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16
Q

Financial assets

A

money, debt securities, financial contracts and equity securities that are backed by real assets

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17
Q

Money

A

a physical or electronic asset accepted as payment for goods and services

18
Q

3 functions of money

A
  1. medium of exchange
  2. store of value
  3. standard of value
19
Q

Medium of exchange

A

the basic function of money, money must be accepted

20
Q

Standard of value

A

when prices and debts are stated in the terms of the monetary unit (£,$)

21
Q

Store of value

A

when the price / value of money remains relatively stable overtime

22
Q

Liquidity

A

how easily an asset can be exchange for money or other asset with little loss

23
Q

Purchasing power

A

amounts of goods / services that can be bought with a unit of money

24
Q

Inflation

A

increase in price of good / services that is not offset by increases in quality

25
Q

Treasury bill

A

short term debt obligation issued by US government (91 days to 1 year)

26
Q

Commercial paper

A

short term unsecured noted issued by high credit quality corporation

27
Q

Negotiable certificate of deposit

A

short term debt instrument issued by depository institutions and traded in secondary market

28
Q

Bankers acceptance

A

promise of future payment issued by an importing firm and guaranteed by bank, up to 6 months

29
Q

Federal funds

A

very short term loans between depository institutions with excess funds and those with a need for funds (1 day to 1 week)

30
Q

Repurchase agreement

A

short term debt security where seller agrees to repurchase security at specified rate and dates

31
Q

What 4 things does the M1 money supply consist of

A
  1. currency
  2. demand deposits
  3. travellers checks
  4. other checkable deposits
32
Q

What 4 things does the M2 money supply consist of

A
  1. M1
  2. savings accounts
  3. small denomination time deposits
  4. retail money market mutual funds
33
Q

2 exclusions from money supply

A
  1. stock and bond mutual funds
  2. credit cards
34
Q

GDP

A

measure of output of goods and services in an economy

35
Q

Velocity of money

A

the rate of circulation of the money supply

36
Q

Monetarists view

A

amount of money in circulation determines the level of GDP / economic activity

37
Q

Keynesians view

A

change in MS cause change in interest rates which alters demand for goods causing GDP to grow

38
Q

Monetarists view equation

A

GDP = MS x VM

39
Q

Other equation for GDP

A

GDP = RO x PL

40
Q

Equations combines

A

MS x VM = RO x PL

BUS 149 (5 decks)

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