Financial Factors Overview

A comprehensive set of 60 vocabulary flashcards covering key terms and concepts related to financial factors, assets, monetary policy, and economics.

Financial Assets

Investments that yield a rate of return and are considered key to a firm's investment process.

Liquidity

The ease with which a financial asset can be assessed and converted into cash.

Rate of Return

The net gain or loss of an investment over a specified period.

Risk

The chance that an outcome or the actual gains from an investment differ from the expected outcome.

Stock

A certificate representing a claim to a share of the ownership of a firm.

Equity Financing

The method of raising funds for investment by issuing shares of stock to the public.

Bond

A certificate of indebtedness from the issuer to the bondholder.

Debt Financing

A firm's way of raising investment funds by issuing bonds to the public.

Inverse Relationship

A situation where two variables move in opposite directions, such as bond prices and interest rates.

Loans

The process of borrowing money, which requires repayment with interest.

Bank Deposits

The money held in a bank account, allowing for withdrawals as needed.

Nominal Interest Rate

An interest rate that is not adjusted for inflation.

Real Interest Rate

An interest rate that is adjusted for inflation.

Money Demand

The total demand for money, expressed as the sum of transaction demand and asset demand.

Fiat Money

Paper and coin money that has no intrinsic value and is backed by government trust.

Commodity Money

Money that has intrinsic value and an alternative non-monetary use.

Functions of Money

Money serves as a medium of exchange, a unit of account, and a store of value.

Medium of Exchange

A function of money that facilitates trade by being accepted in exchange for goods and services.

Unit of Account

A function of money that provides a standard measure of value for goods and services.

Store of Value

A function of money that allows it to maintain value over time.

Money Supply

The total quantity of money in circulation, as measured by the Federal Reserve.

M1

The definition of money supply that includes the most liquid forms of money.

M2

A broader definition of money supply that includes M1 plus savings and small time deposits.

Monetary Base

The total amount of physical currency in circulation and reserves in the banking system.

Fractional Reserve Banking

A banking system where only a fraction of deposits are held in reserve.

Reserve Ratio

The percentage of deposits that banks are required to hold in reserve.

Excess Reserves

Funds held by a bank beyond the required minimum reserves.

T-account

A table used to represent the assets and liabilities of a bank.

Money Multiplier

The maximum amount of new checking deposits that can be created from a given amount of excess reserves.

Transaction Demand

The amount of money held for the purpose of making transactions.

Asset Demand

The amount of money held as an asset that is sensitive to interest rate changes.

Open Market Operations (OMOs)

The buying and selling of government bonds by the Federal Reserve to influence the money supply.

Federal Funds Rate

The interest rate paid on short-term loans made between banks.

Discount Rate

The interest rate charged to commercial banks for short-term loans from the Federal Reserve.

Required Reserve Ratio

The minimum percentage of deposits that banks must hold as reserves.

The Loanable Funds Market

A market where borrowers can access funds and lenders can supply funds.

Demand for Loanable Funds

The quantity of credit desired at each real interest rate by borrowers.

Supply of Loanable Funds

The quantity of credit available at various real interest rates from banks and lenders.

Shifters of Demand for Loanable Funds

Factors influencing credit demand, such as foreign demand, borrowing needs, and future expectations.

Shifters of Supply of Loanable Funds

Factors influencing credit supply, such as savings rate and foreign purchases.

Monetary Policy

The actions undertaken by a central bank to control money supply and interest rates.

Expansionary Monetary Policy

Policy aimed at increasing money supply and lowering interest rates to stimulate the economy.

Contractionary Monetary Policy

Policy aimed at decreasing money supply and increasing interest rates to combat inflation.

Market Equilibrium

The point where the quantity of money demanded equals the quantity of money supplied.