Complete List of Terms and Definitions for and Banking 4

Terms Definitions
Bank asset loan
Is money a stock? Yes
coupon bond equation P= (C/1+i)+ C/(1+i)2......F/(1+i)n
Nasdaq Stock market index; value-weighted index of over 5000 companies traded OTC; mainly smaller, newer firms
commercial banks The largest financial intermediary directly involved in the financing of real estate.
George Washington is on the quarter/$1 bill
Seeking ways to avoid regulation Loophole mining
Collateral Specific assets borrower pledges to protect the lender's interest in the event of nonpayment
thrift institutions savings and lona associations, mutual savings banks, and credit unions
budget deficit the excess of government expeditures over tax revenues for a particular time period
ATM an automatic teller machine; a machine that allows you to take money out of or put money into your bank account using a specail card.
Everything else held constant, during a business cycle expansion, the supply of bonds shifts to the ________ as businesses perceive more profitable investment opportunities, while the demand for bonds shifts to the ________ as a result of the increase in right; right
The "unit of account" function that money performs relates to the use of money as a measure of ________. Value
When deposits are lost because depositors make withdrawals and demand payment Deposit outflows
What Aspect of Money does this represent: Would you choose a seasonal item like apples? Variability
Fiat money Paper money, value comes from government decree, or fiat
Nominal interest rate Interest rate expressed in current-dollar terms
Bond a debt security that promises to make payments periodically for a specific period of time
Capital Market longer term debt and equity are traded
Mortgage Backed Securities securities that cheaply bundle and quantify the default risk of the underlying high risk mortgages,
The discount rate refers to the interest rate on primary credit
legal tender something used as an official medium of payment
Income refers to _______ in a given period. Earnings
What are securities? They are also called financial instruments but they are claims on the borrower's future income or assets
The goal of price stability comes first and then the other goals are able to be achieved is called? Hierarchical mandates
Primary Goal of Monetary Policy(6 items) 1.Price Stability2.High Employment3.Economic Growth4.Stability of Financial Markets5.Interest Rate Stability6.Foreign Exchange Market Stability
Spread over treasuries Difference between bond interest rates and T-bill interest rates (benchmark)
Money market A financial market trading in debt instruments that are completely repaid in less than a year
economies of scale the reduction of transaction costs per dollar of transactions as the size of transactions increases
medium of exchange anything that is generally accepted as a standard of value and a measure of wealth in a particular country or region
Mortgage a specific type of loan that is used to buy real estate
Economists consider the ________ to be the most accurate measure of interest rates. yield to maturity.
Money made up of precious metals or another valuable commodity Commodity money
This ties down the price level to achieve price stability Nominal anchor
Reserve Requirements 3% of first 48.3 Million, 10% above 48.3 Million.
 
Fed can vary the 10% between 8% and 14%
Liquidity A measure of ease with which an asset can be turned into a means of payment
Yield to maturity Yield bondholders receive if they hold the bond to its maturity
Financial instrument Part of the financial system; used to transfer resources from savers to investors and to transfer risk to those who are best equipped to deal with it. Ex. Stocks, mortgages, insurance policies
unit of account a means for comparing the values of goods and services
The Federal Reserve System was created to promote financial market stability.
This is a better measure because it describes how much is earned on the owners' equity investment Return on Equity
What is a Consul? A perpetual bond with no maturity date
The Federal Funds rate is stated as: A nominal interest rate
Call option The right to buy a given quantity of an underlying asset at a predetermined price (strike/exercise price)
US paper currency is printed at the Bureau of Engraving and Printing
Who is on the back side of a $1 bill? George Washington
In its role as the bankers' bank, a central bank performs each of the following, except: Providing deposit insurance
Most liquid of all the money market instruments because they are the most actively traded U.S. Treasury Bills- money markets
Where is US paper currency printed Bureau of Printing + Engraving in Washington DC
short term vs long term maturity short term- less then one year long term- ten years or longer
High employment is a worthy goal for two main reasons: 1. The alternative situation- high unemployment- causes much human misery2. When unemployment is high, the economy has both idle workers and idle resources, resulting in a loss of output
The bank failures that occurred during the early years of the Great Depression: Hurt small depositors the most, since it was mostly small banks that failed
There are four different ways a bank can eliminate its shortfall of not having enough reserves: 1. Acquire reserves by borrowing them from other banks in the Federal funds market of by borrowing from other corporations2. Sell securities3. Borrow from the Fed4. Reducing loans to meet the reserve requirements
When a bank takes savings from many small savers and lends it to many borrowers, the bank: Decreases the risk to savers through diversification
b.3 why did buyers of mortgage backed securities underestimate the risk involved -they had top ratings, and were rated low risk-the thought was house prices would always go up- at worst they could just sell off the security to someone else
c.6 how is the us able to pay for the goods that it imports. mention three different categories in the balance of payments the trade balance is negative-but is made possible because of the foreigh held us assets so other countries are investing in the US-country has more services coming into the us than going out-income