Finance

Front 1

Surplus units

Back 1

participants who provide funds to the financial markets

Front 2

Deficit units

Back 2

participants who use financial markets to obtain funds

Front 3

Money markets

Back 3

financial markets that facilitate the flow of short-term funds (with maturities of less than one year)

Front 4

Capital markets

Back 4

financial markets that facilitate the flow of long-term funds

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Primary markets

Back 5

facilitate the issue of new securities

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Secondary markets

Back 6

facilitate the trading of existing securities

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Liquidity

Back 7

the degree to which securities can be easily liquidated (sold) without a loss of value

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Organized exchange

Back 8

visible marketplace for secondary market transactions

Front 9

Over-the-counter market

Back 9

a telecommunications network

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Money market securities

Back 10

debt securities that have a maturity of one year or less

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Capital market securities

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securities with a maturity of more than one year (bonds, mortgages, stocks)

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Perfect financial markets

Back 12

all information about any securities for sale in primary and secondary markets (including the creditworthiness of the security issuer) would be continuously and freely available to investors. No markets are perfects

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Imperfect financial markets

Back 13

securities buyers and sellers do not have full access to financial information and cannot always break down securities to the precise they desire

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Money market mutual funds

Back 14

concentrate in money market securities (minimum denomination of the types of securities purchased by mutual funds is typically greater than the savings of an individual surplus unit)

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Broker

Back 15

a person who executes securities transactions between two parties

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Federal reserve district bank

Back 16

facilitate operations within the banking system by clearing checks, replacing old currency, and providing loans (through the discount window) to depository institutions in need of funds. commercial banks that become members of the fed are required to purchase stock in their federal reserve district bank

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Board of governors

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made up of seven individual members within officers in DC

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Discount rate

Back 18

the interest rate charged on fed loans to depository institutions

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Federal open market committee (FOMC)

Back 19

made up of the seven members of the board of governors plus the presidents of the five fed banks

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Beige book

Back 20

a consolidated report of regional economic conditions in each of the 12 districts

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Trading desk (open market desk)

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if the fed determines that a change in its monetary policy is appropiate, its decision is forwarded to the trading desk

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Policy directive

Back 22

the FOMC's decision on the target money supply level is forwarded to the trading desk at the new york federal reserve district bank through this statement

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Open market operations

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the buying and selling of government securities (through the trading desk). it's the most common means by which the fed controls the money supply

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Re-purchase agreements

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when the fed desires to increase the aggregate level of bank funds only for a few days to ensure adequate liquidity in the banking system on those days, thus issuing re-purchase agreements

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Dynamic open market operations

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implemented to increase of decrease the level of funds

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Defensive open market operations

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offset the impact of other conditions that affect the level of funds

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Reserve requirement ratio

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the proportion of their deposit accounts that must be held as reserves, this ratio is set by the board of governors (usually around 8-12% of their transactions accounts, such as checkings accounts)

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Money market deposit account (MMDA)

Back 28

checks can be written against MMDA's which are offered by depository institutions or against a money market mutual fund

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M1

Back 29

includes currency held by the public and checking deposits (such as demand deposits, NOW accounts, and automatic transfer balances) as depository institutions

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M2

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a broader measure of money which includes M1 as well as savinga accounts and small time deposits, MMDA's, and some other items

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M3

Back 31

includes everything in M2 as well as large time deposits and other items

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Depository institutions deregulation and monetary control act (DIDMCA)

Back 32

passed in congress in 1980, it had two key objectives: deregulate some aspects of the depository institutions industry and secondly to enhance the fed's ability to control the money supply

Front 33

Keynesian theory

Back 33

suggests how the fed can affect the interastion between the demand for money and the supply of money to influence interest rates, the aggregate level of spending, and therefore economic growth

Front 34

Demand-pull inflation

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a portion of the high inflation is possibly due to excessive spending that is pulling up prices

Front 35

Modern quantity theory of money

Back 35

a given increase in the money supply leads to a predictable increase in the value of the goods and services produced

Front 36

Theory of rational expectations

Back 36

holds that the public accounts for all existing information when forming its expectations

Front 37

Phillips curve

Back 37

a relationship that suggests the government policies designed to cure unemployment may place upward pressure on wages

Front 38

Leading economic indicators

Back 38

used to predict future economic activity

Front 39

Coincident economic indicators

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tend to reach their peaks and troughs at the same time as business cycles

Front 40

Lagging economic indicators

Back 40

used to predict future economic activity

Front 41

M3

Back 41

includes everything in M2 as well as large time deposits and other items

Front 42

Depository institutions deregulation and monetary control act (DIDMCA)

Back 42

passed in congress in 1980, it had two key objectives: deregulate some aspects of the depository institutions industry and secondly to enhance the fed's ability to control the money supply

Front 43

Keynesian theory

Back 43

suggests how the fed can affect the interastion between the demand for money and the supply of money to influence interest rates, the aggregate level of spending, and therefore economic growth

Front 44

Demand-pull inflation

Back 44

a portion of the high inflation is possibly due to excessive spending that is pulling up prices

Front 45

Modern quantity theory of money

Back 45

a given increase in the money supply leads to a predictable increase in the value of the goods and services produced

Front 46

Theory of rational expectations

Back 46

holds that the public accounts for all existing information when forming its expectations

Front 47

Phillips curve

Back 47

a relationship that suggests the government policies designed to cure unemployment may place upward pressure on wages

Front 48

Leading economic indicators

Back 48

used to predict future economic activity

Front 49

Coincident economic indicators

Back 49

tend to reach their peaks and troughs at the same time as business cycles

Front 50

Lagging economic indicators

Back 50

used to predict future economic activity

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Recognition lag

Back 51

the lag between the time a problem arises and the time it is recognized

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Implementation lag

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the lag from the time a seriousl problem is recognized until the time the fed implements a policy to resolve it

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Impact leg

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even after the fed implements a policy, there will be an impact lag until the policy has its full impact on the economy

Front 54

Monetizing the debt

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when the fed loosens the money supply, which might offset the increased demand for loanable funds by the federal government

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Money market securities

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securities with maturities within one year

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commercial paper

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a short-term debt instrument issued only by well-known, credit-worthy firms and is typically unsecured

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junk commercial paper

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commercial papers that are rated low or not at all

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negotiable certificates of deposit (NCDs)

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certificates that are issued by large commercial banks and other depository institutions as a short-term source of funds

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reverse repo

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refers to the purchase of securities by one party from another with an agreemtnt to sell them (a repo and a reverse repo can refer to the same transaction but from different perspectives)

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federal funds rate

Back 60

the federal market allows depository institutions to effectively lend or borrow short-term funds from each other at the "federal funds rate". The rate is the rate charged on federal funds transactions and is influenced by the supply and demand for dunds in the federal funds market