Test 1 Flashcards
what are the 6 parts of a financial system
- money
- financial instruments
- financial markets
- financial institutions
- regulatory agencies
- central banks
can the 6 part of the financial system change
yes
5 core principles of money and banking
- time
- risk
- information
- markets
- stability
can the 5 principles of money and banking change
no
what is money
money is an asset that is used as a medium for goods and services or to repay debt
what are the 3 characteristics of money
- means of payment
- unit of account
- store of value
what does something mean when it has “means of payment”
it can be used in a transaction of goods or services as a medium
what does it mean to have a unit of account
money can be used to give prices for goods and services
what does it mean for money to have a store of value
the money must be capable to be stored and transferrable from one day to the next
what are the 2 types of liquidity
- market liquidity
- funding liquidity
what is market liquidity
the ability to sell assets for money
what is funding liquidity
the ability to borrow money for securities or loans
what is fiat money
money that is created from government decree and not necessarily backed by anything
what is included in M1
currency in the hands of the public
+demand deposits
+ other checkable deposits
what is included in M2
M1
+saving deposits and money markets
+ small denominations of time deposits
do people use M1 or M2 more
M2
How does M2 track correlate with inflation
when the quantity of money increases then inflation increases
what is the most common type of bond
coupon bond
what is a risk free asset
an investment whose future is known with certainty with a certain rate of return
what is variance
the spread of numbers from its average value
how is standard deviation related to variance
it is the square root of variance
what is value at risk
the worst possible outcome for an investment at a given probability
what are 2 types of risk
- idiosyncratic (unique)
- systemic (economy wide)
what are bond supply shifter
- changes in government borrowing (increase will shift right)
2.changes in business conditions - changes in expected inflation
