Econ - Ch. 12 Vocab

saving

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

savings

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

financial system

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

certificate of deposit

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

financial asset

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

financial intermediary

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

nonbank financial institution

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

finance company

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

bill consolidation loan

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

premium

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

mutual fund

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

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

pension

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

pension fund

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

real estate investment (REIT)

company organized to make loans to homebuilders

risk

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

401(k) plan

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

coupon

stated interest on a corporate, municipal, or government bond

maturity

life of a bond or length of time funds are borrowed

par value

principal of a bond or total amount borrowed

current yield

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

municipal bond

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

tax-exempt

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

savings bond

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

Treasury note

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

Treasury bond

United States government bond with maturity of 10 to 30 years

Treasury bill

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

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

Roth IRA

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

capital market

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

money market

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

primary market

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

secondary market

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

equities

stocks that represent ownership shares in corporations

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

portfolio diversification

strategy of holding several investments to protect against risk

stockbroker

person who buys or sells securities for investors

securities exchange

physical place where buyers and sellers meet to exchange securities

seat

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

over-the-counter market (OTC)

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

Dow-Jones Industrial Average (DIJA)

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

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

bull market

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

bear market

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

spot market

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

futures contract

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

futures market

market where futures contracts are bought and sold

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

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

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

options market

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