Money, Banking, and Finance (Chapters 10-11)
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
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—
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
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
Gold Standard A monetary system in which paper money and
coins are equal to the value of a certain amount
Federal Reserve System The nation’s central banking system.
Central Bank A bank that can lend to other banks in time of
Member Banks Banks that belong to the Federal Reserve
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
Money Supply All the money available to the United States
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
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
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
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
Diversification The strategy of purchasing many different types
of investments—stocks, bonds, CDs—to reduce
Portfolios The entire collection of an investor’s financial
assets, including stocks, bonds, savings
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
Maturity The time at which payment to the bondholder is
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,
Securities and Exchange Commission An independent government agency that
(SEC) regulates financial markets and investment
Junk Bonds These are high-yield securities (corporate or
municipal bonds), usually lower-rated (riskier),
but with the potential to be higher-paying than
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.
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.