Money and Finance

Question 1

Barter system

Answer 1

trading services and goods without a intermediary

Question 2

Money

Answer 2

1. Medium of exchange (no need for barter system) 2. Store of value (can be stored) 3. Unit of counting Anything used as a medium of exchange

Question 3

Lenders

Answer 3

One of the two roles of the financial system. This role wants to grow their money Want to turn their money now into more money in the future.

Question 4

Borrowers

Answer 4

One of the two roles of the financial system. This role wants to use money to buy something. Need money now and will pay it back (with interest) in the future.

Question 5

Equity

Answer 5

The difference between the value of assets/interest, and the cost of liabilities

Question 6

Secruitize

Answer 6

Taking an asset and turning it into security

Question 7

Perverse Incentive

Answer 7

A policy ends up having a negative effect, opposite to what was intended

Question 8

Moral Hazard

Answer 8

One person takes on more risk because someone else bears the burden of the risk

Question 9

Mortgage

Answer 9

The piece of paper that represents the person who owns a house, ala a pink slip, but for a house

Question 10

Sub prime mortgage

Answer 10

A mortgage given to someone with a poor credit history

Question 11

CDO

Answer 11

Collateralized Debit Obligations

Question 12

Compound Interest

Answer 12

A = P(1+r/n)^nt

• A = amount
• P = principal amount
• r = interest rate
• n = number of times interest applied per time period
• t = number of time periods elapsed