MONEY MARKET AND INTEREST RATE Flashcards
It is a means of payment for goods and services or repayment of debts which serves as an asset to the holder.
money
The financial system works on an entirely fiduciary basis.
money
It is an economic unit that functions and recognized as a medium of exchange for transactional purposes in the economy.
money
It is a contract in which the vendor of a security agrees to repurchase it from the buyer at an agreed price.
term repurchase agreements
It is the total value of money available in an economy at a point in time.
money supply
It includes all coins and paper money issued by the government and the banks.
currency
It includes all coins and paper money issued by the government and the banks.
M4 (L) - High-grade commercial papers
It is an unsecured short-term debt instrument issued by a corporation, typically for the financing of accounts payable and inventories or meeting short-term liabilities.
M4 (L) - High-grade commercial papers
It is an instrument that represents a promised future payment by a bank.
bank acceptance note
It includes currency, traveler’s checks, demand deposits, and other checkable deposits.
It is often referred to as the narrowest measure of the money supply.
M1. Narrow Measure
It includes currency, traveler’s check, demand deposits, and other checkable deposits.
It includes savings deposits and balances in retail money market funds.
It includes large time deposits, balances in institutional money market funds, and term repurchase agreements.
It includes liquid and near liquid assets such as short-term treasury bills, high-grade commercial paper, bank acceptance notes.
M4 L
It includes currency, traveler’s checks, demand deposits, and other checkable deposits.
It includes saving deposits and balances in retail money markets funds.
It refers to money used as a store of value.
M2. Intermediate Measure
It includes currency, traveler’s check, demand deposits, and other checkable deposits.
It includes saving deposits and balances in retail money market funds.
It includes large time deposits, balances in institutional money market funds, and term repurchase agreements.
M3 Broad Measure
What are the role or functions of money in the economy?
- Medium of exchange - money is accepted freely in exchange for all other goods
- A measure of value - it acts as a common measure of value. It is a unit of account and a standard of measurement.
- Store of value - money is a convenient form to store wealth.
- Standard of deferred payments - it forms the basis for credit transactions.
Difference between treasury bills, notes, and bonds
Treasury bills have maturities of a year or less
Treasury notes are issued with maturities from 2 to 10 years.
Treasury bonds are long-term investments and mature to 10 to 30 years from issue date.
What is the most fundamental type of commercial paper?
Promissory note - It is a written pledge to pay money. It is a two-part paper.
It is the amount charged on top of the principal by the lender to the borrower.
interest rate
What are the 2 main sources of cost capital?
Cost of equity (shareholder - dividend),
and cost of loans (banks - interest)
What are the 2 things that shareholders expect to return?
Dividends
Share Price Appreciation
It is the expectations of the shareholders in the company.
Cost of share funds (equity)
It is the amount the lender charges for the use of assets expressed as % of the principal.
Interest rates
TRUE OR FALSE. Saving accounts and certificate of deposit use compound interest.
TRUE
Money invested in a bank today will be much more in 10 years’ time.
time value of money
TRUE OF FALSE. Interest is similar to the fee or processing fee.
FALSE
What does the equation of exchange means?
It states that the actual total value of all money expenditure (MV) is always equal to the actual total value of all items sold (PY)
It is the money paid regularly at a particular % for the use of money lend or for delaying the repayment.
interest
TRUE OR FALSE. Most mortgages use simple interest.
TRUE
It is the interest rate that is earned at a bank or credit union from a savings account or certificate of deposits.
Annual Percentage Yield
TRUE OR FALSE. Consumer loans typically use compound interest.
FALSE. Consumer loans typically use Annual Principal Rate and do not use compound interest.
How do companies determine which source of funding will be the least expensive?
By weighing the cost of borrowing and cost of equity.
What are the sources of demand?
Transaction demand
Precautionary demand
Speculative demand
What does demand money mean?
It is the desired holding of financial assets in form of money, cash, or bank deposits rather than investment.
What are the factors that affect the demand for money?
- Level of income
- Interest rates and Inflation
- Uncertainty about the future
It is the mathematical expression of the quantity theory of money.
Equation of exchange
What is the formula of the equation of exchange?
MV=PY
M = money supply
V= velocity of money
Price = price level
Y = volume of transaction
It is the measure of money or the number of times that the average unit of currency is used to purchase goods.
Velocity of money
2 Impact of money.
- Higher interest rate decrease investment
- Higher peso will decrease exports recruiting in slower GDP growth.
states that the money supply and price level in an economy are in direct proportion to one another.
Quantity Theory
is evaluated to achieve an optimal capital structure.
cost of capital
It is the cost of the company’s funds and may be either debt or equity or both.
cost of capital
It is the minimum return that investors expect for providing capital
cost of capital
