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19 Terms
1
Financial assets
Items of value that can be traded in financial markets, representing claims to future income or value.
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2
Fiat money
Currency that has no intrinsic value and is not backed by a physical commodity, declared legal tender by the government.
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3
Commodity money
Money that has intrinsic value, made of a commodity like gold or silver, which has value in itself.
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4
Financial intermediary
An institution that connects borrowers with lenders, such as banks or insurance companies.
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5
Fisher effect
The relationship between nominal interest rates, real interest rates, and inflation, where an increase in expected inflation leads to an equal increase in nominal interest rates.
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6
Monetary base
The total supply of a country’s currency, including coins, paper money, and reserves at the central bank.
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7
Money
A medium of exchange widely accepted for the purchase of goods and services.
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8
Balance sheet
A financial statement showing a company’s assets, liabilities, and equity at a specific point in time.
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9
Bank deposit
Funds placed in a bank account, used by the bank to lend to others, potentially earning interest for the depositor.
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10
Bank reserves
The portion of deposits that must be held in reserve and not lent out.
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11
Liability
A financial obligation or debt owed by a person or organization.
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12
Bond
A debt security where the issuer borrows funds from investors and agrees to pay back the principal with interest.
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13
Capital inflow
The movement of capital into a country from foreign investors in various forms.
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14
Central bank
The institution responsible for managing a country’s monetary policy and regulating the banking system.
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15
Demand deposits
Bank deposits that can be withdrawn at any time without advance notice.
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16
Excess reserves
The amount of reserves held by a bank above the required minimum.
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17
Federal funds market
The market where banks lend reserves to each other overnight on an unsecured basis.
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18
Federal funds rate
The interest rate at which banks lend reserves to one another overnight.
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19
Fractional reserve system
A banking system wherein banks are required to keep only a fraction of deposits as reserves.
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