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Unit 2 Vocabulary

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Actual Reserves
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A certificate issued by a government or private company which promises to pay back with interest the money borrowed from the buyer of the certificate. (A loan in the form of an IOU that pays interest)

EX) (Treasury bonds, high-yield bonds, mortgage-backed bonds, etc) When an investor purchases a bond, they are "loaning" that money (called the principal) to the bond issuer, which is usually raising money for some project. When the bond matures, the issuer repays the principal to the investor. In most cases, the investor will receive regular interest payments from the issuer until the bond matures.