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19 Cards in this Set
- Front
- Back
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US TREASURY |
WORLDS LARGEST BANK CUSTOMER. HAS MORE INCOME AND IT ALSO BORROWS MORE THAN ANY OTHER BANK CUSTOMER. |
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THE MOST IMPORTANT ASSETS THAT SERVE AS MEANS OF PAYMENT IN THE US TODAY. |
1. CURRENCY - PAPER BILLS AND COINS 2. TOTAL RESERVES HELD BY BANKS AT THE FED. 3. CHECKABLE DEPOSITS - YOUR CHECKING OR DEBIT ACCOUNT. 4. SAVINGS DEPOSITS, MONEY MARKET MUTUAL FUNDS, AND SMALL-TIME DEPOSITS. |
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LIQUID ASSET |
AN ASSET THAT CAN BE USED FOR PAYMENTS OR, QUICKLY AND WITHOUT LOSS OF VALUE, BE CONVERTED INTO AN ASSET THAT CAN BE USED FOR PAYMENTS. |
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3 DEFINITIONS OF MONEY SUPPLY. "THE MONEY PYRAMID" |
M2: M1 + SAVINGS DEPOSITS + MONEY MARKET MUTUAL FUNDS + SMALL TIME DEPOSITS. M1: CURRENCY PLUS CHECKABLE DEPOSITS. MB: CURRENCY AND RESERVES HELD BY BANKS AT THE FED. |
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FRACTIONAL RESERVE BANKING |
BANKS HOLD ONLY A FRACTION OF DEPOSITS IN RESERVE, LENDING THE REST. |
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RESERVE RATIO |
IS THE RATIO OF RESERVES TO DEPOSITS. |
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MONEY MULTIPLIER |
THE AMOUNT THE MONEY SUPPLY EXPANDS WITH EACH DOLLAR INCREASE IN RESERVES. MM = 1/RR |
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OPEN MARKET OPERATIONS
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WHEN THE FED BUYS OR SELLS GOVT. BONDS. |
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QUANTITATIVE EASING |
WHEN THE FED BUYS LONGER-TERM GOVT. BONDS OR OTHER SECURITIES. |
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QUANTITATIVE TIGHTENING |
WHEN THE FED SELLS LONGER-TERM GOVT. BONDS OR OTHER SECURITIES. |
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FEDERAL FUNDS RATE |
THE OVERNIGHT LENDING RATE FROM ONE MAJOR BANK TO ANOTHER. |
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LENDER OF LAST RESORT |
LOANS MONEY TO BANKS AND OTHER FINANCIAL INSTITUTIONS WHEN NO ONE ELSE WILL. |
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DISCOUNT RATE |
THE INTEREST RATE BANKS PAY WHEN THEY BORROW DIRECTLY FROM THE FED. |
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SOLVENCY CRISIS |
OCCURS WHEN BANKS BECOME INSOLVENT. THE VALUE OF A BANK'S LOANS FALLS SO FAR THAT THE BANK CAN NO LONGER PAY BACK IT'S DEPOSITORS. |
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INSOLVENT BANK |
HAS LIABILITIES THAT ARE GREATER THAN IT'S ASSETS. |
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LIQUIDITY CRISIS |
OCCURS WHEN BANKS BECOME ILLIQUID. DEPOSITORS DEMAND LARGER WITHDRAWALS AND BANKS ARE FORCED TO BORROW FUNDS AT AN ELEVATED INTEREST RATE. |
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ILLIQUID BANK |
HAS SHORT-TERM LIABILITIES THAT ARE GREATER THAN IT'S SHORT-TERM ASSETS BUT OVERALL HAS ASSETS THAT ARE GREATER THAN IT'S LIABILITIES. |
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SYSTEMATIC RISK |
RISK THAT THE FAILURE OF ONE FINANCIAL INSTITUTION CAN BRING DOWN OTHER INSTITUTIONS AS WELL. |
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MORAL HAZARD |
OCCURS WHEN BANKS AND OTHER FINANCIAL INSTITUTIONS TAKE ON TOO MUCH RISK, HOPING THAT THE FED AND REGULATORS WILL LATER BAIL THEM OUT. |
