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absence of spending


dollars available when people abstain from consumption

certificate of deposit

document showing an investor has made an interest-bearing loan to a bank

financial assets

claims on the property and income of the borrower

financial system

network of savers, investors, and financial institutions that work together to transfer savings to investors

financial intermediaries

institutions that lend the funds that savers provide

nonbank financial institutions

non-depository institutions that also channel savings to borrowers

finance company

firm that specializes in making loans directly to consumers


price the insured pays for life insurance


regular payment intended to provide income security to someone who has worked a certain number of years

pension fund

fund set up to collect income and disburse payments to those persons eligible for pension


the degree to which an outcome is uncertain


formal long-term contract that requires repayment of borrowed money and interest on the borrowed funds at regular intervals over time

coupon rate

stated interest on debt


life of bond

par value

total amount initially borrowed that must be repaid to lender at maturity

current yield

annual interest divided by the purchase price

junk bonds

exceptionally risky bonds

municipal bonds

bonds issued by state and local governments


meaning that the federal government does not tax interest paid to investors

savings bonds

nontransferable bonds issued by the U.S. government


one who inhereits the ownership of the financial asset if purchaser dies

treasury notes

government obligations with maturities of 2 to 10 years

treasury bonds

have maturity dates ranging from 10 to 30 years

treasury bills

short-term obligation with a maturity of weeks

individual retirement accounts

long term tax-sheltered deposits that can be set up as part of an individual retirement plan

capital market

the market in which money is loaned for more than one year

money market

market in which money is loaned for periods of less than one year

primary market

market where only original issuer can sell or repurchase a financial asset

secondary market

existing financial assets can be resold to new owners


shares of common stocks that represent ownership of corporations


person who buys or sells equities for clients

efficient market hypothesis

argument that stocks are usually priced correctly and that bargains are hard to find because stocks are followed closely by investors

portfolio diversification

practice of holding a large number of different stocks so that increases in some stocks can offset declines in others

mutual fund

company that sells stock in itself to individual investors

net asset value

net value of the mutual fund divided by the number of shares issued by a mutual fund

401(k) plan

tax-deferred investment and savings plan that acts a s a personal pension fund for employees


place where buyers and sellers meet to trade stocks

securities exchange

place where buyers and sellers meet to trade stocks

over the counter market

electronic marketplace for securities that are not yet traded on an organized exchange

dow jones industrial average

most popular and widely publicized measure of stock market performance

standard and poor's 500

uses price change of 500 representative stocks as an indicator of overall market performance

bull market

strong market with prices moving up for several months in a row

bear market

nasty market with prices of equities falling sharply for several months in a row

spot market

transaction is made immediately at prevailing price

futures contract

agreement to buy or sell at a specific future date at a pre-determined price


special type of future contract that gives buyer right to cancel contract

call option

right to buy something at a specific future price

put option

right to sell something at a specific future price

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