Econ Exam 5 MMHS

What term describes something that serves as a way to compare values?

Unit of account

What term describes something that keeps its worth?

Store of Value

What term describes the direct exchange of one good for another?

Barter

What term describes money that can be easily divided into smaller units of value?

Divisibility

What term describes money that has value because the government has ordered that it is an acceptable means to pay debts?

Fiat money

What term describes the coins and paper bills used as money in a society?

Currency

What term describes that any two units of money must both have the same purchasing power?

Uniformity

What term describes an object that has value in itself as well as its value as a means of exchange?

Commodity money

What term describes anything that is used to determine value?

Medium of exchange

What term describes money that must withstand the wear and tear that comes from being used over and over again?

Durability

During the Free Banking Era between 1837 and 1863, what dominated U.S banks?

Wildcat banks

As part of the nation's recovery from the Great Depression of the 1930s, the banking system was reformed in what way?

The banking system was taken off the gold standard

What term describes a government institution that insures customer deposits against bank failure?

FDIC

What term describes an institution for receiving, keeping and lending money?

Bank

What is the gold standard?

A system in which a country's money is backed with gold

The savings and loan crisis in the late twentieth century was caused at least partially by what?

High interest rates, bad loans and fraud

Who was the main Federalist banker behind the creation of the first Bank of the United States in 1791?

Alexander Hamiltion

What term describes paper money that was issued by the U.S Treasury during the Civil War?

Greenback

After the Civil War, the National Banking Acts gave the federal government the power to do what?

All answers are correct

What term describes the current United States central banking system that is comprised of 12 member banks?

Federal Reserve System

What term describes the device that allows its holder to buy goods based on 1 point a promise to pay?

Credit card

What is a credit union?

A cooperative lending institution for a particular group

How does a bank make most of its profit on its business?

By earning interest on loans

Respectively, what M1 term describes money in checking accounts and what M1 term describes the ability of assets to be used as cash, or directly converted into, cash?

Demand deposits, liquidity

What comprises the money supply in a country's economy?

All the money available in an economy

What term describes the amount of money borrowed?

Principal

What term describes a device that allows its holder to buy goods and have the payment deducted from a checking account?

Debit card

What term describes a system that keeps only a small part of a deposit on hand and lends out the rest?

Federal reserve banking

Respectively, what term describes a specific type of loan that is used to buy real estate and what term describes the failure to pay back a loan?

Mortgages, default

What is the difference between simple and compound interest?

Simple interest is paid on the principal only; compound interest is paid on both principal and accumulated interest

Why is a certificate of deposit considered a safe investment?

It is guaranteed by the federal government

What term describes an arrangement that allows the transfer of money between savers and borrowers?

Financial system

What is a mutual fund?

A device for pooling the savings of many investors and investing it in a variety of ways

What is a prospectus?

An investment report for potential investors

What term describes an institution that helps channel funds from savers to borrowers?

Financial intermediary

How does a person fund act as an investor?

The company invests the money collected from employers and/or employees

What term describes a collection of financial assets?

Portfolio

What term describes redirecting resources from being consumed today to create future benefits?

Investments

What is the money an investor receives above and beyond the money initially invested called?

Return

What term describes spreading out investments to reduce risk?

Diversification

What would be the annual yield of a bond if the coupon rate was 8.5%, maturity was 10 years, and the par value was $10,000?

$850

What term describes a low-denomination bond issued by the U.S. Government?

Savings bond

Investors earn interest on the bonds they buy, but what other way can investors make money from bond purchases?

Buying bonds at a discount

Respectively, what term describes the interest rate that the bond issuer will pay the bondholder and what term describes the amount that an investor pays to buy the bond that will be repaid to the investor at maturity?

Coupon rate, par value

Why would an investor buy a junk bond?

Junk bonds pay a potentially higher level of interest than other bonds

What is the Securities and Exchange Commission (SEC)?

A government agency that regulates financial markets and investment companies

What is the difference between a primary market and a secondary market?

A primary market's financial assets can be redeemed only by the original investor; a secondary market's assets can be resold

How does the risk involved in a money market mutual fund compare with the risk of a certificate of deposit (CD)?

The risk of a money market mutual fund is slightly greater than that of the CD

What is a corporate bond?

A bond issued by a corporation as a way to borrow money

What term describes a bond issued by a state or local government authority?

Municipal bond

In the late 2000s, what "bubble" deflated leading to a high rates of personal bankruptcy?

Housing bubble

What does the New York Stock Exchange do?

Arranges stock and bonds of the largest and most established companies in the United States

In the late 1920's what practices of buying stock led to ballooning of prices and eventually the collapse of the stock market on Black Tuesday?

Speculation and buying on margin

What terms describes a business specializes in trading stocks?

Brokerage firm

Respectively, what term describes the option to sell shares of stock at a specified time in the future and what term describes the option to buy shares of stock at a specified time in the future?

Put option, call option

Who buys and sells stocks on a minute-by-minute basis to try to reap profit?

Daytraders

What are the DOW and S&P 500?

Indexes that show performance of limited but representative stocks

What term describes a period during which the stock market falls steadily?

Bear market

What term describes an electronic marketplace for stocks that are not listed or treated on an organized exchange?

OTC Market

What is the main difference between capital gain and capital loss?

Capital gain is when a person sells their stock for financial gain