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24 Cards in this Set
- Front
- Back
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real sector
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the market for the production and exchagne of goods and services
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financial sector
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the market for the creation and exchange of financial assets such as money, stocks, and bonds
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interest rate
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equilibrates supply and demand in the financial sector; the price paid for the use of a financial asset
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financial assets
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assets such as stocks or bonds
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bonds
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promises to pay a certain amount plus interest in the future
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money
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1. highly liquid financial asset that's generally accepted in exchange for other goods (medium of exchange)
2. is used as a reference in valuing other goods (unit of account) 3. a store as wealth |
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liquid
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easily changeable into another asset or good
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Federal Reserve Bank (Fed) aka U.S. central bank
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the U.S. central bank whose liabilities (Federal Reserve notes) serve as cash in the United States;
the bank that has the right to issue notes (IOUs) |
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Fed notes
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money, Fed's IOUs
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bank
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a financial institution whose primary function is accepting deposits for,and lending money to, individuals and firms
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M1
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the narrowest of all definitions; consists of currency in the hands of the public, checking account balances, and traveler's checks
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M2
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made up of M1 plus savings deposits, small-denomination time deposits, and money market mutual fund shares;
the measure of money often most closely correlated with the price level and economic activity |
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L
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the broadest measure of money and includes almost all short-term assets (maturity less than 1 yr)
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small-denomination time deposits
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aka certificates of deposit (CDs)
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asset management
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how a bank handles its loans and other assets
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liability management
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how a bank attracts deposits and what it pays for them
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reserves
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currency and deposits a bank keeps on hand or at the Fed or central bank, enough to manage the normal cash infows and outfolows
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reserve ratio
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the ratio of reserves to total deposits (sum of required reserve ratio and excess reserve ratio)
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required reserve ratio
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the ratio banks are required to hold by the Fed
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excess reserve ratio
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additional percentage that banks choose to hold
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simple money multiplier
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1/r
(r = reserve ratio) the measure of the amount of money ultimately created per dollar deposited in the banking system, when people hold no currency |
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approximate real-world money multiplier
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1/(r+c)
(c = ratio of money people hold in currency to the money they hold as deposits) |
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FDIC
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Federal Deposit Insurance Corporation
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spread (of a bank)
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the difference between their cots and the interest they pay out, and the interest they take in minus bad loans
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