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AP Econ > Unit 4 Financial Sector > Flashcards

Unit 4 Financial Sector Flashcards

1
Q

asset

A

any resource of value that can be converted into cash
real: physical (art, house, ect)
intangible: not physical property (patents)
financial assests (currency and investments)

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2
Q

demand deposits

A

common financial assets that can be withdrawn as desired

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3
Q

liquidity

A

ease with which assets can be converted to cash

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4
Q

securities

A

investments traded on the secondary/stock market
equities, bonds, derivatives

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5
Q

equities

A

ownership shares in a corporation

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6
Q

bonds

A

long term loans

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7
Q

derivatives

A

financial contracts w/ value from underlying assets

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8
Q

risk

A

danger of losing money

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9
Q

Credit rjsk

A

Danged associated with lengibg money if borrower can’t pay

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10
Q

Liquidity risk

A

Can’t ve sold or bought fast enough ti cut losses

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11
Q

Foreign. Investment risk

A

Market operations, higher investment cost, exchange rates, and political votality

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12
Q

Interest rate

A

Rate of thr cost of borrowing money and the profit depositers receive from a. Bank from yhr use kf tbeir money

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13
Q

Loans

A

Money lent to make a profit

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14
Q

Rate of return

A

Percent of initial investment gained or lost

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15
Q

Time value

A

Considerstion of how the value of money changes over time

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16
Q

Bonds

A

Loans from a bank or corporation
When ir rises, bond value Dec and vv

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17
Q

Municipal bonds

A

State ans municipal issue. Bonds to finance speocal projects

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18
Q

Corporate bonds

A

Businesses issue bonds to finance activities, expansion, ect that are taxable

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19
Q

Thr federal reserve system

A

Fed: sets ffr
Us treasury: borrows money for gog by selling investments
Financial industry: banks that are free go set it based on competition. Ffr. Ect

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20
Q

Nominal interest rates

A

Doesn’t take inflation into account
Used by bankers to describe loans
Used by ffr

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21
Q

Real interest rates

A

Rate adjusted for inflation
Gives borrowers better idea of cost for borrowing and progit fir
lending
Nominal ir-inflation rate

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22
Q

Ducntiojs of money

A

Medium of exchange
Unit of account
Store of value

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23
Q

Currency

A

Money in a particular country as a medium of exchanges

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24
Q

Kinds kf money

A

Commodity: gets value from substance it js made if
Representativr: value comes from commodity it reps
Fiat: value is based on people’s confidence

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25
M0
Monetary base Measure of all the currency in circulation and deposits kept by banks and fed (Circulation and reserves) Physical Funda are held in m2 and m1
26
M1
Ms curve Keaudre of currency held by public or in fully liquid demand deposits Not in treasury, fed, and depository institutes Physical
27
M2
M1 + savings account, money market deposits account, certificates of deposit and certain other bank reserves
28
Depository institutes
Hold funds or securities for depositors Commercial banks, thrift institutes, and credit unions
29
Commercial banks
Can be private or owned by stockholders Work directly with deposits Dominate banking secot due to range of services for bus and profits from loans
30
Thrift institutes
Owned by account holders Pay more interst of savings Small and communal Restricted by law foe 20% bus loans Severe low income hh
31
Credit unions
Non profits Exemption from corporate taxes Only need enough money to fund day to day ops Higher interest on dd and low on loan
32
Depository accounts
Checking accounts are considered cash Used fir debit, checks, or casb from ATM Electric funds transfer
33
Electronic funds transfer
Allows bulls to br paid by moving funds from 1 account to another (Monry market, certificates of deposit, and savings)
34
Bank loans
Another service Make money through interest Backed with assets
35
Bank services
Deposit Withdwa Loans Credit cards Sell money orders and bank drafts Exchange foreign currency Safe deposit boxes
35
Bank sheet liability
Demand deposits
36
balance sheet
Financial statement thst summarizes assets liabilities and net worth
37
Net worth
Difference between assets and liabilities
38
Balance sheet assets
Extra reserves Required reserves Loans Bonds/securities
39
Reserve requirements
Percent kf a deposit a bank had to hold Ina reserve at the fed
40
Reserve ratio
Percent of deposits a bank has to reserve
41
Excess reserves
Amount over a banks require reserves
42
Frictional reserve banking
Banker hole portion kf depositors money in a reserve Rest of funds used for loans
43
Money multiplier
1/rr Total change: dd(1-rr)(1/rr)
44
demand for money
how much of assets people choose to hold as easily obtainable money law of demand: as ir decreases, q demanded for money inc
45
speculative demand for money
money people hold in stocks, bonds, or other secutiries that earn interest
46
motiveies to hold money
transactions: pay for g and s precautionary: less liqueid money so itll be ready for future speculative demand
47
determinants for the demand of money
level of income and gdp ( inc = inc d) price level (inc = inc) epectations (bond prices fall = sell = inc) tansfer costs: (inc costs to trandfer funds b/w accounds = inc) preferences
48
money suppky
controleld by central banl omos, rr, dr
49
disequilibium in money market
when d or s causes nIR to create a surplus or shorage when NIr is greater than E people reduce money they hold and vv
50
monetary polucy
actions and communications the central bank takes to manage the money supply and interest rate to promote max emploument promote stable prices and target a certain inflation level promote moderate long-term IR influences long term-ir,proces of securities, C and I, employment adn prices
51
central bank
financial institute authorized to produce and distrubed money and credit for a nation and to condudct monetary policy
52
expansionary policy
inc ms and dec ir
53
contractionary policy
dec ms and inc ir
54
open market operations
central bank buys or sells gov bonds in open market to change ms expand: inc ms and dec ir by buying bonds contract: dec ms and inc ir by selling bonds allows bank to keep ample reserves and set ffr
55
federal funds rate
overnight loans b/w banks
56
required reserve ration
percent of deposits banks must keep in central bank inc = dec ms and inc ir and vv
57
discount rate
ir charged by central bak for loans or reserve funds to commercial banks affects ffr
58
effects of monetayr policy
influence ad, rgdp, pl, Ur, and IR expand: dr/ rr down or buy bonds = ms inc = ir dec = c+I inc = ad inc = rddp and pl inc and ur dec contract: dr/rr up or sell bonds = ms dec = ir inc = C + I dec = ad dec = rdgp dec = rgdp and pl dec and ur inc
59
monetary policy limits
impossible to predict future problems so time lags b/w problem and solution least effective during ends of bus cycle and might not do enough in recession new laws= less regulation and more compeititon cant control global economy
60
prime rate
interest rate on loans from banks to their best customers
61
zero bound
inability to lower ffr below 0
62
quantitatve easing
omo of large scale purchase of assets by central bank to stimulate economy by providing liquidity
63
interest rate on reserve balances
fed pays interest on reserves to banks floor reduces bank opp cost of holding reserves inc = more cash on reserves dec = more loans
64
how to create ffr in ample
change IORB/ administered raets
65
demand and supply changes in the market for reserves
changes in admini rates shiftss demand inc ior = shift up = inc in policy rate and vv inc in reserves = shift supply right and vv
66
order of policy rates in market for reserves
DR: DR greater than FFR so that banks will make a profit by making loans and will lose less by payin less interest; greater that IORB so fed makes profit FFR: greater than IORB to make profit so banks make more with interest on loans than iorb iorb: lowest to make profit

AP Econ (5 decks)

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