Money, Banking, and Finance: Key Concepts and Standards

What are the 3 functions of money?

Medium of exchange, standard of value, store of value.

What are the 4 physical properties of money?

Durability, portability, divisibility, uniformity.

What are the 3 economic properties of money?

Stability of value, scarcity, accessibility.

What is the difference between a bull market and a bear market?

A bear market is when stock prices go down, while a bull market is when they go up.

What is commodity money?

Money that has value from the material itself.

What is representative money?

Paper money that can be exchanged for something of equal value.

What is fiat money?

Money that has value because the government says it does.

Why did the U.S. transition from state banking to federal money?

State banking had different currencies, causing problems; federal money provides a uniform currency.

What money standards has the USA operated under?

Gold standard, paper standard, and currently fiat money.

What is contained in M1?

Currency and demand deposits (checking accounts).

How does M1 differ from M2?

M2 includes M1 plus liquidity, savings accounts, and time deposits (CDs).

What is a bank run?

When many people withdraw money simultaneously due to fear of bank failure.

How has modern banking changed?

It has become more technologically dependent.

What is the FDIC?

Federal Deposit Insurance Corporation, an independent agency that protects depositors if a bank fails.

What is simple interest?

Interest calculated on the principal amount only.

What is compound interest?

Interest calculated on the principal and also on the accumulated interest.

How do assets and liabilities work on a bank's balance sheet?

Assets equal liabilities plus equity; banks own assets and liabilities are the responsibility of customers.

How does collateral work for securing a loan?

Collateral is an asset pledged to secure a loan, which the lender can claim if the borrower defaults.

What are the 3 services provided by banks?

Deposits, loans, and transfer services.

What is a financial intermediary?

An entity that brings together savers and borrowers.

What is the risk vs return relationship?

Higher investments typically yield higher returns and risks, while lower investments yield lower returns and risks.

List investment options from lowest to highest risk.

Cash, checking accounts, savings accounts, certificates of deposit, bonds, corporate bonds, mutual funds, large-cap stocks, small-cap stocks, cryptocurrency.

What is Fractional Reserve Banking?

A banking system where banks hold a fraction of deposits as reserves and lend out the rest.