Unit 4: Money, Banking, and Personal Finance

Federal Reserve System

The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates

Credit Union

A nonprofit financial institution that is owned by its members and organized for their benefit.

Credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

Paystub

A document that comes with your paycheck, showing how much you were paid and how much was withheld for taxes.

FICA taxes

Based on the Federal Insurance Contributions Act; tax withheld from employees' paychecks and matched by employers for Social Security and Medicare.

Federal Open Market Committee

the 12 member group that determines the purchase and sale policies of the Federal Reserve Banks in the market for U.S. government securities

Reserve Ratio

the fraction of deposits that banks hold as reserves

Discount Rate

The interest rate on the loans that the Fed makes to banks

Expansionary Monetary Policy

Federal Reserve system actions to increase the money supply, lower interest rates, and expand real GDP; an easy money policy.

Contractionary Monetary Policy

the Federal Reserve's policy of increasing interest rates to reduce inflation

investment

spending on capital equipment, inventories, and structures, including household purchases of new housing

Investment bank

trades in financial assets and is not covered by deposit insurance

Bond

A financial security that represents a promise to repay a fixed amount of funds

Stocks

shares of ownership in a company

Financial Intermediary

institution that helps channel funds from savers to borrowers

Capital Market

market in which money is lent for periods longer than a year

Liquidity

the ease with which an asset can be converted into cash

money

anything that serves as a medium of exchange, a unit of account, and a store of value

Money Market

market in which money is lent for periods of less than a year

store of value

an item that people can use to transfer purchasing power from the present to the future

unit of account

a means for comparing the values of goods and services

Medium of Exchange

anything that is used to determine value during the exchange of goods and services

commodity money

objects that have value in themselves and that are also used as money

fiat money

money that has value because the government has ordered that it is an acceptable means to pay debts

representative money

objects that have value because the holder can exchange them for something else of value

M1

currency, demand deposits, traveler's checks, and other checkable deposits

M2

All of M1 + less immediate (liquid) forms of money to include savings, money market mutual funds, and small denomination time deposits.

Borrowers

individuals, companies, and governments

Savers

Persons who desire to conserve their monetary funds to the best of their ability.

Commercial Banks

Privately owned financial institutions that accept demand deposits and make loans and provide other services for the public

Credit Cards

means of access to preapproved lines of credit granted by a bank or finance company

Fractional Reserve Banking

a banking system that keeps only a fraction of funds on hand and lends out the remainder

Disposable Income

Income remaining for a person to spend or save after all taxes have been paid

Taxes

Fees for the support of government required to be paid by people and businesses.

Mutual Funds

A pool of money used by a company to purchase a variety of stocks, bonds or money market instruments. Provides diversification and professional management for investors.

Certificates of Deposit

time deposits that state the amount of the deposit, maturity, and rate of interest being paid

savings account

An account at a depository institution that is designed to hold money not spent on current consumption

sub-prime mortgages

mortgages sold to high-risk property buyers with a low income

government bailout

A situation in which a government pays or lends money to save a company or industry from failing.

Dodd-Frank Act

a law enacted in the aftermath of the financial crisis of 2008-2009 that strengthened government oversight of financial markets and placed limitations on risky financial strategies such as heavy reliance on leverage

Financial Assets

intangible assets, such as savings accounts and securities, that are acquired for some promised future return

Main difference between a bank and a credit union is...

Credit unions are usually non-profit.

yield to maturity

the rate of return a bondholder will receive if the bond is held to maturity