Key Terms – Chapters 15 & 16

 

commercial banks - for profit financial institutions - offer lots of services to customers - use the money in the bank to make more money from loans and investments

 

 

 

credit unions - non-profit financial institutions - usually built around a similar group like workers in the same company / industry - offer limited services - only charge enough interest to stay in business

 

 

 Federal Deposit Insurance Corporation (FDIC) - guarantees the safety of your money in the bank, up to 250k per account - prevents a “run on the banks” as your money is OK


 

 

 

Federal Reserve System - an independent government agency in charge of monetary policy - controls things like money supply and interest rates to speed/slow the economy - uses 3 main tools:

 

 

 

open market operations - 

  • The fed can buy or sell new treasury bonds

  • When they buy bonds, it puts dollars back into the economy (sped up)

  • When they sell bonds, it takes money out of the economy (slow)

 

 

 

discount rate - how much the fed charges banks for a loan


If the rate is high, banks won't borrow as much, so they don't lend as music, so they charge more of their customers, and the economy slows down


Lower rate is easier borrowing and more loans and fast economy

 

 

 

reserve requirement -  

 How much banks have to keep on site or in the vault to do business

 


bonds - are like loans but you own them - usually done with government but more companies issue them too - safer than stocks - get some interest from your investments

 

 

 

preferred stock - if dividends are issued, they are first to get a cut… but can only up to a limit - usually has no voting rights

 

 

 

common stock - this is a norma;/stock ownership in a company - if they make a lot of money you can make a ton of money, but no  money is guaranteed - also lets you vote for the board

 

 

 

dividends - money paid out to the owners (stockholders)

 

 

 

retained earnings - money being paid back to the company, not owners, to upgrade or expand operations

 

 

 

insider trading - is when you get hot stock tips that no one else knows about, and then you make deals based on that information - illegal!... unless you are in congress

 

 

 

mutual fund - is a bunch of stocks mixed together and when you buy a “share” you are actually getting micro-shares of each company in the fund.

 

 

 

mortgage loan - huge loans to buying real estate - typically 15 or 30 year terms you first bunch of payment handle interest (pres DT proposed 50 year loans)