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anything that is widely accepted in exchange for goods and services
money
paper money and coins
currency
the exchange of goods and services for other goods or services without the use of money
barter
3 functions of money
medium of exchange, a store of value, and a unit of account
something people acquire for the purpose of payment for goods and services
medium of exchange
something that can be saved and will hold its value relatively well over time
a store of value
a standard measure used to set prices and make economic calculations
unit of account
k
types of money
commodity, representative, and fiat
has value apart from its use as money
commodity money
has no value on its own but can be exchanged for something of value
representative money
value because the government has ordered that it be accepted in payment of debt
fiat money
examples of commodity money
dried fish, silver coins
an example of representative money
gold certificate
an example of fiat money
the U.S. dollar
what type of money does the U.S. have?
fiat money
the amount of money available for the purchase of goods and services
money supply
money in supply is also called what?
money in circulation
The Federal Reserve is also known as what?
the Central Bank
2 versions of the money supply tracked by the Federal Reserve
M1 and M2
a measure of the money supply that includes only the forms of money that are readily available to spend
M1
What 3 things does the M1 money supply include?
currency in circulation, checking accounts, and traveler’s checks
a measure of the money supply that includes M1 along with forms of money that are less easily converted to cash
M2
What 5 things does the M2 money supply include?
M1, savings account, time deposit account, money market account, and mutual funds
accepts deposits from individuals and firms and provides them with loans in addition to a wide variety of other services
commercial banks
an example of a commercial bank:
wells fargo
separated commercial banks and investment banks
Glass-Steagall Act
All national banks and most state banks are covered by the ___ ___ ___ ___ for ___
Federal Deposit Insurance Corporation (FDIC), $250,000
a depository institution that specializes in loans for the purchase of homes and other real estate. They offer checking accounts, CD’s, credit cards, and loans.
savings bank
depository institutions similar to savings banks that specialize in loans for the purchase of homes
Saving and Loans Association
Savings and Loans were insured by Federal Saving and Loans Insurance Corporation until all of this changed in 1989 when a number of S&L’s ___
failed
a not-for-profit depository institution owned by its members who are also its customers
credit unions
the % of deposits that banks must hold as reserves
reserve requirements
reserves over the required amount
excess reserves
risky loans
subprime mortgages
a variety of financial go-betweens that help savers’ money into the hands of borrowers for mutual gain
financial intermediaries
an example of a non-depository financial institution
insurance companies
borrow money from banks then loan it out at a higher rate
finance companies
getting money by selling stock
equity financing
getting money by borrowing it
debt financing
the actual rate of interest that a saver will receive and a borrower will pay
nominal interest rate
the nominal interest rate minus the expected rate of inflation
real interest rate
state and local government bonds
municipal bonds
minimum $25 redeemed after 5 years, fixed rate
US Savings bond
minimum $100 term 30 years and they can be resold, fixed and paid every 6 months
treasury bonds
minimum $100 term 2, 3, 4, 5, 7, 10 years, can be resold, fixed paid every 6 months
treasury notes
minimum $100 term 4, 13, 26, or 52 weeks, can be resold
treasury bills
a high-risk, high interest rate - corporate bond
junk bond
market in which money is lent for one year or more
capital market
a market in which money is lent for less than one year
money market
new assets are sold by their issuers
primary market
what does IPO stand for?
initial public offering
the first sale of a new stock is an ___
IPO
investors buy and sell financial assets that have already been purchased at least once
secondary markets
500 companies on the New York stock exchange, NASDAQ and over the counter
Standard and Poor 500 stock index
30 companies on the New York exchange
Dow Jones
tracks stock of U.S. and foreign corporation traded on the NASDAQ stock exchange
NASDAQ composite index
characterized by steady growth in stock prices
bull market
characterized by rapidly declining stock prices
bear market
The stock and bond markets are regulated by the federal ___ ___ ___ ___
Securities and Exchange Commission
what are the engine of economic growth?
savings
2 components of the financial system needed for an economy to work are:
savers and borrowers
what are pension plans?
retirement plans
a loan an investor makes to an organization or the government in exchange for interest payment over a specified term plus the principal due a the maturity date
bond
Money that is pooled from many investors and the company will invest it according to a specific strategy
mutual fund
when a company shares its’ profit with their shareholders by sending the shareholder a check
dividend
how easily something can be turned in to cash
liquidity
In 2007 the bubble peaked and the industry collapsed in
2008
In 2010, regulations were ___ and ___ created reform for Wall Street
tightened, Dodd-Frank