Finance Chapter 1

money

Anything that is widely accepted as payment for goods and services.

finance

The management of money, including investing, borrowing, and budgeting.

financial system

The network of institutions that manage money flow (banks, markets, etc.).

inflation

The general increase in prices over time, reducing purchasing power.

CPI

Consumer Price Index

measures average price changes in goods and services purchased by households.

financial market

A place where buyers and sellers trade financial assets like stocks and bonds.

security

A financial instrument representing ownership (stocks) or debt (bonds).

stock

A share of ownership in a company.

bond

A loan made by an investor to a borrower, often a corporation or government.

liquidity

How quickly an asset can be converted into cash without loss.

debt securities

Investments like bonds where investors lend money to issuers.

equity securities

Investments that represent ownership in a company (stocks).

expected return

The profit an investor anticipates earning.

rate of return

The gain or loss on an investment over time.

yield

The income return on an investment, such as interest or dividends.

risk-return relationship

The higher the potential return, the higher the potential risk.

risk averse

Prefers lower-risk investments, even with lower returns.

FDIC

Federal Deposit Insurance Corporation

insures deposits in banks.

FED

Federal Reserve System,the central bank of the United States.

trade surplus

When a country exports more goods than it imports.

trade deficit

When a country imports more goods than it exports.

balance of trade

The difference between the value of a country's exports and imports.

foreign exchange rate

The value of one currency compared to another.

personal financial planning

Managing income and expenses to meet financial goals.

assets

Items of value owned by an individual or business.

liabilities

Debts or obligations owed to others.

opportunity cost

The next best alternative you give up when making a decision.

time value of money

The idea that money today is worth more than the same amount in the future.

risk

The possibility of losing money on an investment.

budget

A financial plan for managing income and expenses.

diversification

Spreading investments to reduce overall risk.

money market

Market for short-term borrowing and lending.

capital market

Market for long-term investments like stocks and bonds.

financial institutions

Organizations that provide financial services like banks or insurance companies.

financial intermediaries

Institutions that connect savers and borrowers.

deposit institution

Takes deposits and offers loans (like banks or credit unions).

non-deposit institution

Provides financial services but does not take deposits (like insurance companies).

full-service bank

Offers a wide range of financial services.

savings and loan association (S&L)

Specializes in savings accounts and mortgage loans.

mutual savings bank

Owned by depositors, focuses on savings and home loans.

credit union

Nonprofit financial institution owned by its members.

life insurance company

Offers financial protection and investment options through life insurance policies.

premium

Payment made for insurance coverage.

investment company

Manages pooled funds for investors (like mutual funds).

mutual fund

A pool of money from investors used to buy a diversified portfolio of assets.

pension plan

Retirement plan providing income after employment ends.

contributions

Money added to a retirement or savings account.

consumer finance company

Provides loans directly to consumers.

mortgage company

Specializes in home loans.

check-cashing outlet (CCO)

Converts checks into cash for a fee.

pawnshop

Lends money in exchange for personal property as collateral.

revenue

Income generated from business or government activities.

current expenses

Day-to-day operational costs.

capital expenditures

Money spent on long-term assets like buildings or equipment.

capital projects

Large, long-term investments in infrastructure or facilities.

source of funds

Where money comes from for spending or investing.

interstate commerce

Trade between two or more states.

intrastate commerce

Trade within a single state.

tax revenue

Money a government collects from taxes.

income tax

Tax paid on an individual's or business's income.

property tax

Tax on owned property, such as land or buildings.

sales tax

Tax added to the purchase of goods and services.

U.S. savings bonds

Government-issued bonds for individual investors.

Treasury securities

Government-issued bonds used to finance federal spending.

municipal bonds

Bonds issued by local governments to fund public projects.

financial decision

A choice related to spending, saving, investing, or borrowing money.