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27 Cards in this Set
- Front
- Back
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Advantages of a Monetary Economy
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removes double coincidence of wants
allows specialization economize on price info |
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Functions of Money
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Medium of exchange
unit of account (worth of product) store of value (savings) Deffered payments (loans) |
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Money Growth Rate &
Inflation |
Friedman's theory, too much money chased after too few goods leads to inflation
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Money Growth Rate &
Business Cycle |
before recession, MGR drops.
MGR can drop, but no recession. MGR is one of many important factors of bus cycle |
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Money Growth Rate &
Govt budget deficit |
gov budget const= rev - spending
financed by tax rev, borrowing, and inflation financing |
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Money Growth Rate &
Nominal Interest rate |
Must take into consideration time value of money/inflation rate and charge interest accordingly to compensate for forgone consumption
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Financial Intermediation
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set of processes that take money from savings and hand it to firms/gov for investing & money creation.
Surplus > Deficit |
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Investment Opp Frontier
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All points of income possible (today & tomorrow) with efficient investing.
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Indifference Curve
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All points of consumption (today & tomorrow) that provide equal incremental satisfaction
w/o F.I. limited to points on IOF w/ F.I. limited to Consumption Opp Frontier |
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Optimal Investment point
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Max PV income possible on IOF
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Consumption Opportunity Frontier
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w/ F.I. line tangent to IOF which allows for MORE consumption today due to borrowing and lending. Max satisfaction
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Functions of Financial Intermediaries
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facilitate consumption choice
reduce transaction cost produce info pool resources diversify risk praticipate in $$ creation provide expertise |
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Diversification & Insurance Principle
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Diversify investments to get a less than posative correlated return.
Diversify investments to reduce risks to/near zero incase of an event (ie. earthquake nat disaster) |
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Depository Institutions
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commercial banks
Savings & loan ass. (made for morgatge loans only) Mutual Savings (makes loans, profits to depositors) Credit Unions |
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Contractual Savings Insitution
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Life insurance
Pension Fund (gives money after retirement) Fire & casualty insurance |
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Investment Intermediaries
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Mutual Funds
MMMF Finance Company (sell commercial papers) |
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Money Market
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Treasury bills
Commercial paper short term loans |
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Bond Market
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Long term debt securities
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Stock Market
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Trading company shares
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Foreign Exchange Market
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trading currencies
exchange rate |
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Spot Market
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Immediate exchange
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Options Market
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Call- right to buy at specific price @ any time
Put- right to sell at specific price @ any time |
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Forward Market
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amount & time negotiable
Legally binding Dealership System exchange only @ maturity |
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Futures Market
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Standardized contract
Able to sell back Organized exchange Mark to Market - (buyer gain/seller loss when market price changes) |
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Money Market Instruments
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Treasury bills
Bank CDs Commercial Papers Banker's acceptance Repurchase agreements Fed Funds Eurodollars |
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Capital Market Instruments
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Stocks
Corporate bonds/notes mortgages treasury bonds notes state/gov securities consumer/commercial loans |
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Foreign bonds
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Eurobonds
Euroequties |
