Money & Banking

Exam 1

If the price of a Bond goes up the interest rate will go ______?

If the price of a bond goes up… the interest rate will go down

Higher price= _______

lower quantity

What are some examples of Demand Shifters?

-More wealth(growing economy)= more demand

-Higher expected inflation(lower return)= less demand

-Higher expected interest rates(lower return) = less demand

-Greater risk = less demand

-Increased Liquidity = more demand

If there’s a increase in debt, what happens to supply?

Supply goes down

Assets

Things of value that a person or business owns or controls

things that put money into your pockets

Ex: cash, money in a bank account, investments, inventory, etc…

An investment where you lend money in exchange for interest & future repayment is _____?

Bonds

Bonds

Basically loans made by investors to a Gov. or company

What represents ownership in a company

Common Stock

Common stock

A share of ownership in a company

A bond that pays the investor interest regularly until the bond matures is called what?

Coupon Bond

Coupon Bond

A bond that makes regular interest payments and repays the original amount at maturity

EX: A $1,000 bond with a 5% coupon rate pays $50 per year in interest

The risk that a borrower won’t be able to make the required payments on a loan or bond is _____?

Default Risk

Default Risk

The chance a borrower fails to repay their debt

Direct Finance

When borrowers get money directly from investors without using a financial intermediary

EX: A company sells bonds directly to investors to raise money

Indirect Finance

borrowing money through a financial intermediary, such as a bank

EX: You deposit money in a bank —> The bank lends that money to someone else

Borrowing money from a middleman, like a bank is an example of what?

Indirect Financing

A bond that is bought for less than its face value and pays the full face value at maturity is what kind of bond?

Discount Bond

Discount Bond

A bond bought below face value, with the difference being your return

EX: Buy it for $900 —> Receive $1,000 at maturity —> earn $100

Expected Return

The amount of profit or loss you expect to earn from an investment

EX: If your invest $1,000 and expect a 10% return, your expected return is $100

The average return you expect an investment to produce is called _____?

Expected Return

Financial Instruments

Assets used to invest, borrow, or raise money

Assets or contracts that have monetary value and can be bought, sold, or traded

What are some examples of Financial Instruments?

Stocks, bonds, loans, and certificate of deposits(CD’s)

Institutions that connect people who have money with people or businesses that need money is called ____ _____ ?

Financial Intermediaries

Financial Intermediaries

Middlemen that move money from savers to borrowers

EX: Banks, credit unions, insurance companies, and mutual funds

Places or systems where financial assets are bought and sold is called _____. _____?

Financial Markets

Financial Markets

Markets where people trade things like stocks & bonds

EX: The stock market & Bond Market

A monetary system where a country’s currency is tied to a fixed amount of gold and where moneys value is backed by gold is called what??

Gold Standard

Interest Rates

The percentage charged for borrowing money or earned for lending/saving money

The cost of borrowing money

Interest Rates

Liquidity

How fast assets can be converted to cash

Nominal

A value that has not been adjusted for inflation

Real

A value that has been adjusted by inflation

The value today of money that will be received in the future or what future money is worth today is called??

Present Value

Rate of Return

The percentage gained or lost on an investment

How much profit or loss you make on an investment, shown as a percentage is what?

Rate of Return

The additional return you expect for taking more risk is called??

Risk Premium

Risk Premium

The extra return investors expect for taking on more risk

Financial assets that can be bought or sold and tradables investments that represent ownership or debt is called??

Securities

EX: Stocks & bonds are securities

The total value of what a person owns minus what they owe or the value of your assets minus your debts is called???

WEALTH

A graph that shows interest rates on bonds with maturity lengths

Yield Curve

Supply shifters

-More expected profit of investment= more supply

-Higher expected inflation(lower return) = more supply

-Increasing Gov. budget deficit = more supply