Credit Markets Lecture Notes

These flashcards cover key vocabulary and concepts discussed in the lecture on Credit Markets.

Debtors

Economic agents such as entrepreneurs, businesses, home buyers, and college students who borrow funds.

Interest rate

The additional payment above the principal that a borrower makes on a loan.

Nominal interest rate

The annual cost of a loan, calculated as a percentage of the loan amount.

Real interest rate

The annual cost of a loan adjusted for inflation, defined by the Fisher Equation: r = i – π.

Credit demand schedule

A table reporting the quantity of credit demanded at different real interest rates.

Credit supply curve

A curve plotting the quantity of credit supplied at different real interest rates.

Maturity transformation

The process where banks transform short-term liabilities into long-term investments.

FDIC

Federal Deposit Insurance Corporation, which protects depositors in case a bank fails.

Diversification

A risk management strategy that involves holding a varied portfolio of assets.

Systemically Important Financial Institutions (SIFIs)

Financial institutions whose failure could trigger systemic collapse in the financial system.