Economics Ch 15 Vocab

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Member bank

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a private institution and owns stock in its regional Federal Reserve Bank.

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Bank holding company

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company that controls one or morebanks, but does not necessarily engage in banking itself.

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Regulation Z

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The National Consumer Credit Protection Act, referred to as the Truth-in-lending Act, became effective July 1,1969. Regulation Z, published by the Federal Reserve System to implement this law, requires lenders to make meaningful credit disclosures to individual borrowers for certain types of consumer loans.

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Currency

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Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services,currency is the basis for trade.

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Coins

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a flat, typically round piece of metal with an official stamp, used as money.

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Monetary policy

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Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.

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Fractional reserve system

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the practice whereby a bank accepts deposits, makes loans or investments, and holds reserves that are a fraction of its deposit liabilities. Reserves are held at the bank as currency, or as deposits in the bank's accounts at the central bank

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Legal reserves

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the minimum amount of bank deposits or life insurance company assets required by law to be kept as reserves.

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Reserve requirements

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reserve requirement (or cash reserve ratio) is a central bank regulation employed by most, but not all, of the world's central banks, that sets the minimum fraction of customer deposits and notes that each commercial bank must hold as reserves (rather than lend out).

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Excess reserves

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are bank reserves in excess of a reserverequirement set by a central bank. They are reserves of cash more than the required amounts.

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Liabilities

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Under international financial reporting standards, a financial liability can be either of these two items: A contractual obligation to deliver cash or similar to another entity or a potentially unfavorable exchange offinancial assets or liabilities with another entity.

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Assets

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Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property.

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Balance sheet

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a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.

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Net worth

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Net worth is the difference between the asset and the liability of an individual or a company. Definition: Net worth is the difference between the asset and the liability of an individual or a company.

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Liquidity

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the availability of liquid assets to a market or company.

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Savings account

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a bank account that earns interest.

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Time deposit

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a deposit in a bank account that cannot be withdrawn before a set date or for which notice of withdrawal is required.

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Member bank reserves

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The bank reserves are the currency deposits which are not lent out to thebank's clients. A small fraction of the total deposits is held internally by thebank or deposited with the central bank.

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Easy money policy

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An easy money policy (or accommodative monetary policy) is amonetary policy that increases the money supply usually by lowering interest rates. It occurs when a country's central bank decides to allow new cash flows into the banking system.

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Tight money policy

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A policy in which a central monetaryauthority, for example, the Federal Reserve System, seeks to restrict credit and raise interest rates. ( Compare easy-money policy.) Note : A tight-money policy might be pursued to limit inflation.

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Open market operations

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refer to the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the opposite.

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Discount rate

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The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank's discountwindow. The discount rate also refers to the interest rate used indiscounted cash flow (DCF) analysis to determine the present value of future cash flows.

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Margin requirement

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The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank's discountwindow. The discount rate also refers to the interest rate used indiscounted cash flow (DCF) analysis to determine the present value of future cash flows.

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Moral suasion

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Moral suasion is an appeal to morality in order to influence or change behavior. A famous example is the attempt by William Lloyd Garrison and his American Anti-Slavery Society to end slavery in the United States by using moral suasion.

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Selective credit controls

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selective credit control means control over advances against the security of "sensitive commodities''

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Prime rate

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the lowest rate of interest at which money may be borrowed commercially.

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Quantity theory of money

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the hypothesis that changes in prices correspond to changes in the monetary supply.

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Monetizing the debt

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thus a two-step process where the government issuesdebt to finance its spending and the central bank purchases the debt, holding it until it comes due, and leaving the system with an increased supply of money.

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Real rate of interest

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The real interest rate is the rate of interest an investor, saver or lender receives (or expects to receive) after allowing for inflation. It can be described more formally by the Fisher equation, which states that the real interest rate is approximately the nominal interest rate minus the inflationrate.

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M1

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M1 is a measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency.

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M2

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M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.