Introduction to Money and Financial Markets

Comprehensive vocabulary flashcards covering the basics of money, evolution of currency, banking, fiscal and monetary policy, and financial leasing and factoring.

Money

Anything generally accepted as payment for goods and services.

Three basic functions of money

Medium of exchange, store of value, and unit of account.

Characteristics of money

Money should be durable, portable, divisible, recognizable, and generally accepted.

Coincidence of wants

A situation where both parties in a trade want exactly what the other offers.

Intrinsic value

The material value of the money itself.

Legal tender

Money that is accepted by law for the payment of debts.

Fiat money

Money that has value because the government declares it legal.

Simple interest

Interest calculated only on the original principal amount.

Compound interest

Interest calculated on both the original principal amount and the accumulated interest from previous periods.

Present value

The current worth of a future cash flow, determined by discounting it with an interest rate.

Nominal values

Values that include the effects of inflation.

Real values

Values that have been adjusted for inflation.

Surplus units

Economic actors who have more income than spending and are able to save money.

Deficit units

Economic actors who spend more than their income and require financing.

Primary market

A financial market where new securities are issued for the first time.

Secondary market

A financial market where existing securities are traded between investors.

Money markets

Markets that deal with short-term funds, including instruments like treasury bills and commercial papers.

Capital markets

Markets that deal with long-term financing, including instruments like stocks and bonds.

Depository institutions

Financial institutions that collect deposits directly from customers.

Non-depository institutions

Financial institutions that obtain funds through financial activities other than customer deposits.

Expansionary fiscal policy

A policy aimed at stimulating the economy by increasing government spending or reducing taxes.

Contractionary fiscal policy

A policy aimed at slowing inflation by reducing government spending or increasing taxes.

Functions of the central bank

Controlling monetary policy, issuing currency, supervising banks, and maintaining financial stability.

Monetary policy tools

The use of interest rates, reserve requirements, and open market operations to manage the economy.

Expansionary monetary policy

A policy that increases the money supply and lowers interest rates.

Contractionary monetary policy

A policy that reduces the money supply and raises interest rates.

Universal banking

A model where commercial banks provide a wide range of services including deposits, loans, and investment products.

5 Cs of credit

The factors used to evaluate creditworthiness: character, capacity, capital, collateral, and conditions.

APR

$\text{Annual Percentage Rate}$; it includes the interest rate plus additional fees and total borrowing costs.

Collateral

An asset that provides security for a lender in case the borrower cannot repay a loan.

LTV ratio

$\text{Loan-to-Value}$ ratio; the measure of a loan amount relative to the value of its collateral.

AER

$\text{Annual Equivalent Rate}$.

APY

$\text{Annual Percentage Yield}$.

ARM

$\text{Adjustable Rate Mortgage}$.

Operating lease

A short-term, flexible lease agreement.

Financial lease

A long-term lease that transfers most of the risks and benefits of ownership to the lessee.

Scrap value

The value of an asset at the time of its disposal.

Residual value

The remaining value of an asset after its period of use.

Capitalised cost

The total recorded cost of an asset.

Adjusted capitalised cost

The total recorded asset cost after including later adjustments.

Factoring

A financial transaction where a company sells its receivables to a financial institution to obtain immediate cash.