Finance Review Sheet Test

Finance Review Sheet Test - Finance Review Sheet Test#1 3...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Finance Review Sheet Test #1: Financial markets- 1) Primary- first time in market 2) secondary 1) Banks a. 2) Federal Government-  biggest borrower Market Classes: 1) Money Market- Short term investment, less than one year 2) Capital Market- Long term investment Regulation: Federal Reserve Congress SEC District Attorney Attorney General Inflation- Persistent rise in the general level of prices.  Rate of change.  Published on a  monthly basis. Types of Inflation: 1) Deflation- Decline in the level of prices (less money available, generally bad) 2) Disinflation- A decline in the rate of an increase 3) Zero-Inflation- No change in prices (represents a price ceiling) 4) Hyper Inflation- Rapidly rising inflation rate. (rare, caused by mismanagement of  the money supply) 5) Stagflation- A simultaneous increase in inflation and the unemployment rate Money supply growth= Inflation growth
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
-Inflation about 3.4% each year. CPI- Consumer Price Index (how to measure inflation) BEA- Bureau of economic analysis Theories of Inflation: 1) Demand-Pull- So much demand for a given product, that the cost increases 2) Cost-Push- So much product not as much demand Causes of Inflation- Growth in money supply Consequences of Inflation: 1) Redistribution of wealth 2) Loss of Investor confidence 3) Fear of hyper-inflation 4) Impact on Exports Interest Rates: 1) “Price of money” 2) compensation paid to a lender for the use of  loaned money 1) Liquidity Premium 2) Inflation Premium- over time cost rises, and purchasing power decreases 3) Risk Premium- Risk of default (stop paying additional reward a lender demands  due interest) to risk profile of borrower 4) Liquidity- How fast an asset can be turned into cash IR= (1+LP) (1+IP) (1+RP)-1 Real Interest Rate=Nominal (stated) rate – inflation rate Exchange Rates- Cost of buying a foreign currency 2 General Transactions: 1) Spot- Little change booths in foreign cities.  Buying currency on the spot (very  expensive)
Background image of page 2
2) Futures- Currency contract, lock in a certain exchange rate, set amount on a set  date. Who exchanges currency? Individuals, banks, governments, import/export companies,  investors, firms, speculators Investment banks created by the Grass Steagull Act- Commercial banking  (checking, savings) Retail brokerage (buying/selling equities) Investment  banking, IPO Investment Bank- Any financial institution with the primary function of distributing 
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/07/2008 for the course BUS 230 taught by Professor Gialanella during the Spring '08 term at Iona.

Page1 / 11

Finance Review Sheet Test - Finance Review Sheet Test#1 3...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online