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Econ ch 11 Financial Markets

STUDY
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saving
absence of spending
savings
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
premium
price the insured pays for life insurance
pension
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
risk
the degree to which an outcome is uncertain
bond
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
maturity
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
tax-exempt
meaning that the federal government does not tax interest paid to investors
savings bonds
nontransferable bonds issued by the U.S. government
beneficiary
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
equities
shares of common stocks that represent ownership of corporations
stockbroker
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
stock
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
option
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