Risk/ Investments Flashcards
Value in investments: On your investment/OF your investment
value is composed of two components: a return ON investment and a return OF investment.
You would be paid interest ON your investment at a comparatively low rate of 1% to 2%. You could get the return OF your money by withdrawing the original investment ($100,000) at any time and leaving the interest in the account. You could get the return both ON and OF your investment by closing the account and withdrawing the principal and all accrued interest. Simple, right?
Money is defined as:
- Currency (i.e., minted coins and paper money) in the hands of the public plus demand deposits at commercial banks (M1).
- Currency plus demand and time deposits at commercial banks (M2).
- Currency plus demand and time deposits plus the liabilities of nonbank financial intermediaries (M3).
- The five components into which economists and statisticians desegregate the money supply, i.e., transactions money (M1), broad money (M2), additional near-monies (M3), liquid assets (L), and total credit (D).
A commodity, such as gold or silver, that is legally established as an exchangeable equivalent of all other commodities and is used as a measure of their comparative values on the market.”
The price of money:
The “price of money” is expressed as an interest rate. With the global economy of today, interest rates can change in a manner of minutes to reflect changing economic conditions.
Federal Reserve System
The supply of money in the U.S is regulated by the Federal Reserve System (the Fed). Founded in 1913, the Fed consists of 12 regional banks. The Board of Governors of the Federal Reserve System is made up of 7 individuals who are appointed to 14-year terms by the President of the United States; appointees must be confirmed by the U.S. Senate. The Fed establishes our nation’s monetary policy.
The supply of money in the U.S is regulated by the Federal Reserve System (the Fed). Founded in 1913, the Fed consists of 12 regional banks. The Board of Governors of the Federal Reserve System is made up of 7 individuals who are appointed to 14-year terms by the President of the United States; appointees must be confirmed by the U.S. Senate. The Fed establishes our nation’s monetary policy.
The efforts by a central bank, such as the Federal Reserve in the United States, to influence the level of economic activity in the country by regulating the availability of money and the rate of interest.”
*Please note that the Fed has and uses two tools. It can influence both the supply of money and the cost of money.
*The supply of money is also related to levels of savings. This combines personal, corporate and government savings.
Discount Rate (of money lent to banks)
The rate the Fed uses to give a discount to banks borrowing money from the government.
Prime rate (of money lent to consumers from the bank)
The Prime Rate is the discounted rate backs give to their “highly rated” customers.
Who are members of the Federal Reserve Board and how are they selected?
The seven members of the Board of Governors of the Federal Reserve System are nominated by the President and confirmed by the Senate. A full term is fourteen years. One term begins every two years, on February 1 of even-numbered years.
When was the Fed founded?
1913
The Federal Reserve consists of ____ regional banks
12
Who owns the Fed?
No one, it is independent.
To whom is the Fed accountable?
Congress.
Thecapital marketis defined as
The interaction of buyers and sellers trading long- or intermediate-term money instruments.”
