Financial Sector

Money Market

A model showing the total supply of and demand for money in a nation.

Money Supply

The total amount of liquid money available in a nation, including cash and deposits.

Money Demand

The asset demand for money, inversely related to the nominal interest rate.

Treasury Bills (T-Bills)

Short-term government debt securities with maturities of a few days to one year.

Certificates of Deposit (CDs)

Time deposits issued by banks with a fixed interest rate and maturity date.

Commercial Paper

Short-term, unsecured debt issued by corporations to finance short-term liabilities.

Repurchase Agreements (Repos)

Short-term loans involving the sale and repurchase of securities.

Federal Funds

Loans between banks in the U.S. to meet reserve requirements.

Eurodollar Deposits

Deposits made in U.S. dollars at banks outside the U.S.

Money Market vs. Capital Market

Money Market deals with short-term securities, whereas Capital Market focuses on long-term investments.

Liquidity Management

Helps businesses and institutions manage their short-term liquidity needs.

Money Multiplier

1 divided by the reserve ratio, indicating the potential increase in money supply from lending.

Open Market Operations (OMOs)

Buying and selling government securities to regulate the money supply.

Discount Rate

The interest rate charged by central banks on loans to commercial banks.

Reserve Requirements

The minimum percentage of deposits that banks must hold in reserve.

Liquidity Trap

When interest rates are near zero, limiting the effectiveness of monetary policy.

Financial Intermediary

A middleman, like a bank, that connects savers with borrowers.

Nominal Interest Rate

The interest rate you earn or pay on a loan as advertised.

Real Interest Rate

Nominal interest rate adjusted for inflation.

Fisher Effect

Higher expected inflation raises nominal interest rates while keeping expected real rates the same.

Fiat Money

Money that has value only because the government says so.

M1

Assets that are directly used for transactions, the most liquid form of money.

M2

Assets that are easily convertible to cash, known as 'near money.'

Monetary Base (High-Powered Money)

The sum of currency in circulation and bank reserves.