Econ - Ch. 12 Vocab

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51 Terms

1

saving

absence of spending that frees resources for use in other activities or investments

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2

savings

the dollars that become available for investors to use when others save

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3

financial system

network of savers, investors, and financial institutions that work together to transfer savings to investment uses

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4

certificate of deposit

receipt showing that an investor has made an interest-bearing loan to a financial institution

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5

financial asset

document that represents a claim on the income and property of the borrower; CDs, bonds, Treasury bills, mortgages

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6

financial intermediary

institution that channels savings to investors; banks, insurance companies, savings and loan associations, credit unions

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7

nonbank financial institution

nondepository institution that channels savings to investors; finance companies, insurance companies, pension funds

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8

finance company

firm that makes loans directly to consumers and specializes in buying installment contracts from merchants who sell on credit

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9

bill consolidation loan

popular type of consumer loan used to pay off multiple existing loans

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10

premium

monthly, quarterly, semiannual, or annual price paid for an insurance policy

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11

mutual fund

company that sells stock in itself and uses the proceeds to buy stocks and bonds issued by other companies

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12

net asset value (NAV)

the market value of a mutual fund share determined by dividing the value of the fund by the number of shares issued

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13

pension

regular allowance for someone who has worked a certain number of years, reached a certain age, or who has suffered from an injury

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14

pension fund

fund that collects and invests income until payments are made to eligible recipients

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15

real estate investment (REIT)

company organized to make loans to homebuilders

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16

risk

situation in which the outcome is not certain, but the probabilities can be estimated

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17

401(k) plan

a tax-deferred investment and savings plan that acts as a personal pension fund for employees

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18

coupon

stated interest on a corporate, municipal, or government bond

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19

maturity

life of a bond or length of time funds are borrowed

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20

par value

principal of a bond or total amount borrowed

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21

current yield

bond’s annual coupon interest divided by the purchase price; measure of a bond’s return

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22

municipal bond

bond, often tax exempt, issued by state and local governments; known as munis

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23

tax-exempt

income from a bond or other investment not subject to tax by federal or state governments

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24

savings bond

low-denomination, non-transferable bond issued by the federal government, usually though payroll-savings plans

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25

Treasury note

United States government obligation with a maturity of 2 to 10 years

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26

Treasury bond

United States government bond with maturity of 10 to 30 years

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27

Treasury bill

short-term United States government obligation with a maturity of one year or under in denominations of $10,000

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28

Individual Retirement Account (IRA)

retirement account in the form of a long-term time deposit, with annual contributions of up to $2,000 per year not taxed until withdrawn during retirement

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29

Roth IRA

individual retirement account in which contributions are made after taxes so that no taxes are taken out at maturity

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30

capital market

market in which financial capital is loaned and/or borrowed for more than one year

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31

money market

market in which financial capital is loaned and/or borrowed for one year or less

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32

primary market

market in which only the original issuer will repurchase a financial asset; government savings bonds, IRAs, small CDs

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33

secondary market

market in which all financial assets can be sold to someone other than the original issuer corporate bonds, government bonds

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34

equities

stocks that represent ownership shares in corporations

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35

Efficient Market Hypothesis (EMH)

argument that stocks are always priced about right, and that bargains are hard to find because they are closely watched by so many investors

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36

portfolio diversification

strategy of holding several investments to protect against risk

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37

stockbroker

person who buys or sells securities for investors

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38

securities exchange

physical place where buyers and sellers meet to exchange securities

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39

seat

membership in a stock exchange such as the New York Stock Exchange

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40

over-the-counter market (OTC)

electronic marketplace for securities not listed on organized exchanges such as the New York Stock Exchange

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41

Dow-Jones Industrial Average (DIJA)

statistical series of 30 representative stocks used to monitor price changes on the New York Stock Exchange

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42

Standard & Poor’s 500 (S&P 500)

statistical series of 500 stocks used to monitor prices on the NYSE, American Stock Exchange, and OTC market

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43

bull market

period during which stock market prices move up for several months or years in a row

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44

bear market

period during which stock market prices move down for several months or years in a row

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45

spot market

market in which a transaction is made immediately at the prevailing price

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46

futures contract

an agreement to buy or sell at a specific date in the future at a predetermined price

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47

futures market

market where futures contracts are bought and sold

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48

option

contract giving investors an option to buy or sell commodities, equities, or financial assets at a specific future date using a price agreed upon today

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49

call option

contract giving investors the option to buy commodities, equities, or financial assets at a specific future date using a price agreed upon today

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50

put option

contract giving investors the option to sell commodities, equities, or financial assets at a specific future date using a price agreed upon today

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51

options market

markets where options, including put options and call options, are traded

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