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46 terms

Economics Chapter 11 Test

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saving
absence of spending
savings
the dollars that become available for investors to use when others save
certificate of deposit
document showing that an investor has made an interest-bearing loan to a financial institution
financial asset
a stock or other document that represents a claim on the income and property of a borrower
financial system
network of savers, investors, and financial institutions working together to transfer savings for investment uses
financial intermediary
institution that channels savings to investors
nonbank financial institution
non-depository institution that channels savings to investors
finance company
*firm that makes loans directly to consumers and specializes in buying installment contracts from merchants who sell on credit
premium
price paid at regular intervals for an insurance policy
pension
regular payment to someone who has worked a certain amount of years, reached a certain age, or has suffered an injury
pension fund
fund that collects and invests until payments are made to eligible recipients
risk
situation in which the outcome is not certain, but the probabilities can be estimated
bond
*contract to repay borrowed money and interest on the borrowed money at regular future intervals
coupon rate
stated interest on a corporate, municipal, or government bond
maturity
life of a bond or length of time funds are borrowed
par value
principal of a bond or total amount borrowed
current yield
bond's annual coupon interest divided by purchase price; measure of a bond's return
junk bond
*bond that carries an exceptionally high risk of nonpayment and a low rating
municipal bond
*bond, often tax exempt, issued by state and local governments
tax-exempt
*not subject to tax by federal or state governments
savings bond
low-denomination, non-transferable bond issued by the federal government.
beneficiary
person designated to take ownership of an asset if the owner of the asset dies
treasury note
US gov obligation with a maturity of 2 to 10 years
treasury bond
US gov bond with a maturity of 3 to 10 years
treasury bill
short term US gov obligation with a maturity of one year or less in denominations of $1000
Individual Retirement Account (IRA)
*retirement account in the form of a long term time deposit, with annual contributions not taxed until withdrawn during retirement
capital market
*market in which financial capital is loaned for more than one year
money market
market in which financial capital is loaned for less than one year
primary market
market in which only the original issuer can sell or repurchase a financial asset
secondary market
*market in which financial assets can be sold to someone other than the original issuer
equities
stocks that represent ownership shares in corporations
stockbroker
person who buys or sells securities for investors
Efficient Market Hypothesis
argument that stocks are always priced about right because they are closely watched
portfolio diversification
*strategy of holding different investments to protect against risk
mutual fund
*company that sells stock in itself and uses the proceeds to buy stocks and bonds issued by other companies
net asset value
the market value of a mutual fund share found by dividing the net value of the fund by the number of shares issued
401(k) plan
*tax deferred investment and savings plan that acts as a personal pension fund for employees
stock or securities exchange
physical place where buyers and sellers meet to exchange securities
over-the-counter market
*electronic marketplace for securities not listed on organized exchanges such as the NYSE
DOW Jones Industrial Average
measure of stock market performance based on 30 representative stocks
Standard & Poor's 500
*measure of stock market performance based on 500 stocks traded on the NYSE, AMEX, and OTC market
spot market
*market in which transaction is made immediately at prevailing price
futures contract
agreement to buy or sell at a specific date in the future @ predetermined price
option
futures contract giving buyer right to cancel contract
call option
futures contract giving a buyer the right to cancel a contract to buy something
put option
*futures contract giving a buyer the right to cancel a contract to sell something