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Econ Unit IV Flash Cards

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					UNIT 4
Money, Banking, and Finance (Chapters 10-11)
IMPORTANT TERMS
Money                  Anything that serves as a medium of exchange, a
                       unit of account, and a store of value.

Medium of Exchange     A quality of money that’s used to determine the
                       value during the exchange or goods and
                       services.

Barter                 The direct exchange of one set of goods or
                       services for another—exchange without money.

Unit of Account         A quality of money that serves as a means for
                       comparing the values of goods and services.

Store of Value         A quality of money that suggests money keeps
                       its value if it is stored rather than used.

Currency               The coins and paper bills we use as money.

Commodity Money        Objects that have value in and of themselves and
                       that are or have been used as money.

Representative Money   Objects that have value because the holder can
                       exchange them for something else of value—
                       money.

Fiat Money             Also known as “legal tender”. Has value because
                       the government says that it is an acceptable
                       means to pay debts.

Bank                   An institution for receiving, keeping, and lending
                       money.

National Bank          A bank chartered or licensed by the national
                       government that could use a single currency from
                       the entire nation, manage the federal
                       government’s funds, and monitor other banks
                       throughout the country.

Bank Run               Widespread panic in which many people try to
                       redeem their paper money from a bank.
Greenbacks                              Paper currency issued by the North during the
                                        Civil War.

Gold Standard                           A monetary system in which paper money and
                                        coins are equal to the value of a certain amount
                                        of gold.

Federal Reserve System                  The nation’s central banking system.

Central Bank                            A bank that can lend to other banks in time of
                                        need.

Member Banks                            Banks that belong to the Federal Reserve
                                        System.

Federal Reserve Notes                   Legal tender that allows the Federal Reserve to
                                        increase and decrease the amount of money in
                                        circulation according to business needs.

Great Depression                        The severe economic decline that began in 1929
                                        and lasted more than a decade.

Federal Deposit Insurance Corporation   A government institution that insures customer
(FDIC)                                  deposits up to $250,000 in the event that a bank
                                        fails.

Money Supply                            All the money available to the United States
                                        economy.

Liquidity                               The ability of an investment to be used as, or
                                        directly converted to, cash.

Demand Deposits                         The money in checking accounts.

Money Market Mutual Funds               A fund that pools money from small savers to
                                        purchase short-term government and corporate
                                        securities.

Fractional Reserve Banking              A banking system that keeps only a fraction of
                                        funds on hand and lends out the remainder.

Default                                 The failure to pay back a loan on time.

Mortgage                                A specific type of loan that is used to buy real
                                        estate.
Credit Cards               Cards entitling their holders to buy goods and
                           services based on the cardholder’s promise to
                           pay for these goods and services.

Interest                   The price paid for the use of borrowed money.

Principal                  The original amount of money borrowed.

Debit Cards                Bank-issued cards used to withdraw money an
                           ATM or to buy goods in stores that are equipped
                           with special machines.

Creditor                   A person or institution to whom money is owed.

Investment                 The act of redirecting resources from being
                           consumed today so that they may create benefits
                           in the future.

Financial System           A method by which a nation’s savers and
                           borrowers can transfer money between them.

Financial Assets           Claims on the property or income of a borrower.

Financial Intermediaries   Institution that help channel funds from savers to
                           borrowers.

Mutual Funds               A financial instrument that pools the savings of
                           many individuals and invests this money in a
                           variety of stocks, bonds, and other financial
                           assets.

Diversification            The strategy of purchasing many different types
                           of investments—stocks, bonds, CDs—to reduce
                           risk.

Portfolios                 The entire collection of an investor’s financial
                           assets, including stocks, bonds, savings
                           accounts, etc.

Prospectus                 An investment report to potential investors.

Return                     The money an investor receives above and
                           beyond the sum of money initially invested.

Coupon Rate                The interest rate that a bond issuer will pay to a
                           bondholder.
Maturity                             The time at which payment to the bondholder is
                                     due.

Par Value                            The amount that an investor pays to purchase a
                                     bond and that will be repaid to the investor at
                                     maturity; also called “face value of principal”.

Yield                                The annual rate of return on a bond if the bond
                                     were held to maturity.

Savings Bonds                        Low-denomination ($50- $10,000) bonds issued
                                     by the United States government.

Municipal Bonds                      Bonds used to finance local government
                                     improvements like highways, schools, and parks;
                                     also known as “munis”.

Corporate Bonds                      A bond that a corporation issues to raise money
                                     to expand its business; they are issued in fairly
                                     large denominations, such as $1,000, $5,000,
                                     and $10,000.

Securities and Exchange Commission   An independent government agency that
(SEC)                                regulates financial markets and investment
                                     companies.

Junk Bonds                           These are high-yield securities (corporate or
                                     municipal bonds), usually lower-rated (riskier),
                                     but with the potential to be higher-paying than
                                     other investments.

Capital Markets                      Market in which money is lent for periods longer
                                     than a year.

Money Markets                        Markets in which money is lent for periods of less
                                     than a year.

Primary Markets                      Market for selling financial assets that can only
                                     be redeemed by the stockholder.

Secondary Market                     Market for reselling financial assets.

Shares                               A portion of stock; the number of shares owned
                                     indicates the percentage of ownership an
                                     investor has in a company.
Equities                              A claim of ownership in a corporation.

Capital Gain                          The difference between the higher selling price
                                      and the lower purchase price.

Capital Loss                          The difference between a lower selling price and
                                      a higher purchase price, resulting in a financial
                                      loss for the seller.

Stock Split                           Where each single share of stock splits into more
                                      than on share.

Stockbroker                           A person who links buyers and sellers of stock.

Brokerage Firms                       Businesses that specialize in trading stocks.

Stock Exchange                        Markets for buying and selling stock.

OTC Market                            The over-the-counter market is an electronic
                                      marketplace for stock that is not listed or traded
                                      on an organized exchange.

Nasdaq (the National Association of   The American market for over-the-counter
Securities Dealers Automated          securities.
Quotations)

Futures                               Contracts to buy or sell commodities at a specific
                                      date in the future at a price specified today.

Options                               Contracts that give investors the choice to buy or
                                      sell stock and other financial assets.

Call Option                           The option to buy shares of stock at a specified
                                      time in the future.

Option                                The option to sell shares of stick at a specified
                                      time in the future.

Bull Market                           A trend when the stock of market rises steadily
                                      over a period of time.

The Dow                               An index of stock prices of thirty large companies
                                      in various industries that has shown these stocks
                                      have traded since 1896; the Dow indicates how
                                      the stock market in general is performing.
S & P 500 (Standard & Poor’s 500)   An index of stock prices of 500 different stocks
                                    as a measure of overall stock market
                                    performance; it gives a broader picture of stock
                                    performances than the Dow.

Great Crash                         The collapse of the stock market in 1929.

Speculation                         The practice of making high-risk investments with
                                    borrowed money in hopes of getting a big return.