Economics Concepts and Choices Chapter 11

savings

income not used for consumption

investment

the use of income today that allows for a future benefit

financial system

all the institutions that help transfer funds between savers and investors

financial asset

a claim on the property of the borrower

financial market

where buyers and sellers exchange financial assets

financial intermediary

an institution that collects funds from savers and invests the funds in financial assets

mutual fund

an investment company that gathers money from individual investors and purchases a range of financial assets

capital market

a market for buying and selling long-term financial assets

money market

a market in which short-term financial assets are bought and sold

primary market

a market for buying newly created financial assets directly from the issuing entity

secondary market

the market where financial assets are resold

investment objective

a financial goal used to determine if an investment is appropriate

risk

the possibility for loss on an investment

return

profit or loss made on an investment

diversification

the practice of distributing investments among different financial assets

stock exchange

a market where securities are bought and sold

capital gain

profit made from the sale of securities

common stock

a share of ownership in a corporation that gives the holder voting rights and a share of the profits

preferred stock

a share of ownership in a corporation giving the holder a share of profits but, in general, no voting rights

stockbroker

buys and sellers securities for customers

future

a contract to buy or sell a stock on a specific future date at a preset price

option

gives an investor the right to buy or sell stock at a future date at a preset price

stock index

measures and reports the change in prices of a set of stocks

bull market

a situtation in which stock market prices rise steadily over time

bear market

a situtation in which stock market prices decline steadily over time

par value

the amount a bond issuer must pay the buyer at maturity

maturity

the date when a bond is due to be repaid

coupon rate

the interest rate a bondholder receives every year until maturity

yield

the annual rate of return on a bond

junk bond

high-risk, high-yield corporate bonds