Money, Banking, and Financial Markets

Comprehensive vocabulary flashcards covering the functions and characteristics of money, banking, investment principles, financial assets, market indexes, and credit concepts.

Medium of exchange

A function of money defined as something accepted as payment for goods and services.

Measure of value

A function of money that allows people to compare the prices of goods and services.

Store of value

A function of money that allows people to save purchasing power for future use.

Portable

A characteristic of money meaning that it is easy to carry and transfer.

Durable

A characteristic of money meaning that it can withstand repeated use without deteriorating.

Divisible

A characteristic of money meaning that it can be divided into smaller units to make transactions easier.

Limited supply

A characteristic of money meaning its quantity must be controlled to maintain its value.

Fiat currency

Currency that has value because the government declares it legal tender and people accept it, rather than because it is backed by a physical commodity.

Certificate of deposit (CD)

A savings product and time deposit in which money is deposited for a fixed period in exchange for interest.

Reserve requirement

A regulation that historically required banks to hold a minimum percentage of certain deposits as reserves.

Federal Reserve

The central bank of the United States that manages monetary policy, supervises banks, and supports financial stability.

Checking account

A bank account designed for everyday transactions and payments.

Savings account

A bank account designed to store money and typically earn interest.

Debit card

A payment card that usually withdraws money directly from a checking account.

Credit card

A payment card that allows users to borrow money from a lender and repay it later.

Electronic funds transfer (EFT)

The electronic movement of money between accounts without using physical cash or checks.

Federal Deposit Insurance Corporation (FDIC)

A federal agency that protects insured bank deposits up to $\$250,000$ per depositor, per insured bank, per ownership category, and helps maintain confidence and stability in the banking system.

Circular flow of finance

The movement of money from savers to borrowers through financial markets and institutions.

Financial intermediaries

Institutions that connect people who save money with people who need to borrow or invest it.

Credit union

A member-owned financial institution that provides banking services, often with favorable rates and fees for members.

Capital formation

The creation or acquisition of productive assets that increase an economy's ability to produce goods and services.

Diversification

Spreading investments across different assets to reduce the risk of losing money from one investment.

Risk tolerance

An investor's ability and willingness to handle potential investment losses.

Risk-return relationship

The principle that investments with greater potential returns generally involve greater risk.

Financial asset

An asset representing a financial claim or ownership interest that may provide income or increase in value.

Corporate bond

A debt security issued by a corporation to borrow money from investors.

Municipal bond

A debt security issued by a state or local government to finance public projects.

Treasury bond

A long-term debt security issued by the U.S. federal government.

Common stock

A security representing ownership in a corporation and usually voting rights.

Mutual fund

An investment that pools money from many investors to purchase a collection of securities.

401(k) plan

An employer-sponsored retirement savings plan that allows employees to contribute money, often with tax advantages.

Individual Retirement Account (IRA)

A retirement savings account that individuals establish to receive tax advantages under specific rules.

Stock exchange

An organized marketplace where securities are bought and sold.

New York Stock Exchange (NYSE)

A major stock exchange where listed securities are traded using a traditional exchange structure with designated market makers.

Over-the-counter (OTC) market

A decentralized market where securities are traded through dealer networks rather than a centralized exchange.

NASDAQ

A major electronic stock market where securities are traded through a computerized dealer-based system.

Dow Jones Industrial Average (DJIA)

A stock market index tracking $30$ prominent U.S. companies using a price-weighted method.

S&P 500

A stock market index tracking approximately $500$ leading U.S. companies using a market-cap-weighted method.

Bull market

A market characterized by rising prices and generally positive investor expectations.

Bear market

A market characterized by falling prices and generally negative investor expectations.

Interest

The cost of borrowing money or the payment earned for lending or saving money.

Principal

The original amount of money borrowed, invested, or deposited.

Interest rate

The percentage charged or earned on money over a specified period.

Borrower

A person or institution that receives money through a loan and agrees to repay it.

Lender

A person or institution that provides money to a borrower.

Saver

Someone who sets aside money rather than spending it immediately.

Investor

Someone who commits money to an asset in hopes of earning a return.

Return on investment (ROI)

The gain or loss earned on an investment relative to its cost.

Liquidity

How easily an asset can be converted into cash without significantly losing value.

Financial market

A marketplace where financial assets are bought and sold.

Primary market

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

Secondary market

A market where investors trade securities that have already been issued.

Initial public offering (IPO)

An event when a company first sells shares to the public.

Dividend

A payment a corporation may distribute to shareholders from its profits or reserves.

Capital gain

An increase in the value of an investment that is realized when it is sold for more than its purchase price.

Capital loss

A loss realized when an investment is sold for less than its purchase price.

Shareholder

A person or institution that owns shares of a company.

Bondholder

An investor who owns a bond and is entitled to its payments under the bond's terms.

Secured loan

A loan backed by collateral that a lender may claim if the borrower defaults.

Unsecured loan

A loan not backed by specific collateral.

Collateral

An asset pledged to secure a loan.

Default

Failure to meet the required terms of a loan, such as making payments.

Compound interest

Interest earned on both the original principal and previously accumulated interest.

Simple interest

Interest calculated only on the original principal.

Employer matching

A feature in a 401(k) plan where an employer contributes additional money based on an employee's contributions, according to plan rules.

Stock market index

A tool used to measure and summarize the performance of a selected group of stocks.

Inflation

A sustained increase in the general price level that reduces the purchasing power of money.

Monetary policy

Actions by the Federal Reserve to influence interest rates, credit conditions, and economic conditions.

Financial security

The ability to meet financial needs and handle unexpected expenses.