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absence of spending


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


price paid at regular intervals for an insurance policy


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


situation in which the outcome is not certain, but the probabilities can be estimated


*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


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


*not subject to tax by federal or state governments

savings bond

low-denomination, non-transferable bond issued by the federal government.


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*retirement account in the form of a long term time deposit, with annual contributions not taxed until withdrawn during retirement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


stocks that represent ownership shares in corporations


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


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

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