Money, Banking, And Finance Flashcards
What is the currency of money?
Actually paper bills and coins accepted in a transaction
Fiat money?
Legal tender of a country/government notes backed by government authority or law
What are the three functions of money?
Medium of exchange, store of value, and standard of value (unit of accord)
Medium of exchange
- means through which goods and services can be exchanged
- allows for the precise and flexible pricing of goods and services
- makes economic transactions convenient
Store of value
- something that holds its value over time
- can be stored and accepted wherever/whenever it’s presented
Standard of value (unit of accord)
- determines the economic worth in the exchange process
- measures the relative cost of goods and services
What are the physical characteristics of money?
Durable, portable, divisibility, and uniformity
Durable money?
Last through many transactions
Portable money?
Easy to carry/transport
Divisibility money?
Change can be made to allow for flexible pricing
Uniformity money?
Features are recognizable difficult to counterfeit
What are the economic characteristics of money?
Stability of value, scarcity, and acceptability
Stability of value
Amount of goods/services bought with a certain amount of money shouldn’t change quickly
Scarcity
Money must be scarce in order to have value
Acceptability
Both parties must agree that it is an acceptable medium of exchange
Financial institutions ex
Banks(aka commercial banks), credit unions, and investment firms
What is money?
Anything people will accept in exchange for goods and services
Financial institutions
Allows for the transfer of funds between people
Banks (aka commercial banks)
- institution for receiving, keeping, and lending money
- initially established to provide loans to businesses
- today, banks offer a range of services
What are the range of services that banks offer
Checking accounts, saving accounts, loans, investment assistance, and credit cards
Credit union
- cooperative saving and lending institutions
- specialize in home mortgages and auto loans
- have membership requirement
Investment firms
Collect funds from savers and interest funds in loans, stock market, and other financial assets
Functions of financial institutes
Savings, checking, loans, investments, and trust funds
Savings
- income that is not used for consumption
- allows you to save money for future expenses
- funds are available for the bank to lend in exchange for a small payment (aka interest)
Checking
- account used to store money
- typically used for immediate expenses
Loans
- borrowed money to repaid with interest
- usually for large purchases (cars, homes, college tuition, etc)
Investments
- Use of income today for future benefit
- economic and personal
Economic
Money lent to businesses
Personal
Individuals putting savings into financial assets
Trust funds
- funds held for a specific purpose to be used at a future gate
- typically set up to protect against financial hardship
What are stock indexes?
They measure and report the change in prices of stocks and health of market
Bull market
Prices steadily rise
Bear market
Prices steadily decline
Mutual fund
- investment company gathers money from individual investors and purchases a wide range of financial assets (like Cabot school districts)
- represent investments of all financial assets held by funds
Stocks
- shares of ownership in a corporation
- most are bought as a financial investment with the expectation that prices will rise and can be resold for profit
Bonds
- loan given to a corporation or government by individuals
- contract with promise to repay borrowed money plus interest on a fixed schedule
Pension fund
- allows employees to save money for retirement
- sometimes includes contributions from employers
- invests pooled contributions to increase value and provide workers with more money when they retire
What is a timed deposit?
- savings in a financial institution for s specific period of time
- higher interest rates than savings accounts
- CDs(certificate of deposit)
what is the most common type of timed deposit?
CDs (certificate of deposit)
