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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