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The Financial Sector

Economics Unit 4

TermDefinition
Financial intermediary an institution that channels money between savers and borrowers for mutual gain
Equity financing when corporations generate revenue by selling stock
Debt financing when corporations generate revenue by selling or taking out loans
Nominal interest rate rate that indicates what the saver will receive for depositing their money as quoted by the government or bank advertisements
Real interest rate rate that accounts for how the inflation rate erodes the rate of interest
Bond a loan from the government to a buyer, who is expected to be reimbursed within a certain time frame at the inflated value
Current yield the measure of the return on a bond, calculated as the annual coupon payment divided by the price
Municipal bond bond issued by the government that are exempted from taxes and therefore regarded as pretty safe investments
Corporate bond bond sold to finance a business that holds higher risk and therefore a higher return rate
Capital market financial asset market in which money is lent for a year or longer
Money market financial asset market in which money is lent for less than a year
Primary market financial asset market in which new assets are sold by the issuer or manufacturer
Secondary market financial asset market in which assets are resold by a previous user
Bull market stock market characterized by a steady growth in stock prices
Bear market stock market characterized by rapidly declining stock prices
Risk tolerance the ability to accept and absorb financial losses
Passbook savings account a savings account with a low or nonexistent minimum balance requirement, a low interest rate, and easy access to funds
Demand deposit withdrawal from a passbook savings account upon the account user's demand
Stock represents partial ownership of a company, and will increase or decrease in value depending on said company's success
Stock mutual fund represent ownership in several different company's stocks, in which the success of one company can make up for the lapse of another
Asset anything of value that is owned or controlled with the expectation it will benefit the owner in the future
Benchmark index measures the average performance of the stock market in general
Active investing investment strategy of trying to outperform the market by beating the benchmark index
Passive investing investment strategy of assembling investments that match the benchmark index and watching returns amount to the same the benchmark estimates
Efficient market hypothesis hypothesis that markets respond to information so efficiently that it's impossible to predict whether stock & bond prices will rise or fall without inside information
Index fund mutual fund that duplicates the investments in a benchmark index
Popular Economics sets

 

 



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