Chatpet 26 : Understanding the Financial System: Saving, Investment, and Financial Markets

These flashcards cover key concepts related to the financial system, focusing on saving, investment, and financial markets.

Financial System

Institutions that coordinate one person's saving with another person's borrowing.

Savers

supply Individuals that are willing to lend it.

Borrowers

demand Individuals that invest in something,

Bond Market

A financial market where borrowers can issue bonds to raise funds directly from savers.

Bond

A certificate of indebtedness, essentially an IOU from the borrower to the lender.

Maturity Date

The date on which the principal amount of a bond is paid back to the lender.

Interest Rate

The amount of money borrowers pay to lenders for borrowing funds, typically expressed as a percentage.

Credit Risk

The probability that a borrower will fail to repay part or all of their borrowed money.

Principal

The initial amount of money that is borrowed (the loan amount).

Default

When a borrower fails to repay part or all of the principal.

Municipal Bond

A bond issued by local or state governments, typically offering tax-free interest payments.

Equity Finance

Raising funds by selling ownership shares in a company, typically through stock.

Debt Finance

Raising funds by borrowing money, usually through bonds.

Stock Market

A financial market where shares of ownership in a company are bought and sold.

Supply and Demand Model

A model that describes how the interaction of supply and demand determines the price and quantity of loanable funds.

Loanable Funds

The money that savers are willing to lend to borrowers in the economy.

Demand Curve for Loanable Funds

A graphical representation showing the relationship between the interest rate and the quantity of funds demanded.

Supply Curve for Loanable Funds

A graphical representation showing the relationship between the interest rate and the quantity of funds supplied.

Investment Tax Credit

A tax incentive that reduces the cost of investment and encourages borrowing.

Capital Gains Tax

A tax on the income earned from the sale of an asset, such as stocks or bonds.

Crowding Out

When government borrowing leads to higher interest rates that reduce private investment.

National saving

private saving + public saving

in an closed economy what varible are not included

net exports

what represents the price of a loan

Intrest rate

investments =

saving =

investments = Demand

saving = supply

increase in intrest rate= increase in quantity supplied

decrease in inertest rate = decrease in interest rate

increase in intrest rate= increase in quantity supplied

decrease in inertest rate = decrease in interest rate