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Econ Chapter 11
Financial Markets
| Term | Definition |
|---|---|
| Saving | absence of spending that frees resource for use in other activities or investments |
| Savings | the dollars that become available for investors to use when others save |
| Certificate of Deposit | document showing an investor has made an interest-bearing loan to financial institution |
| Financial Asset | a stock or other document that represents a claim on the income and property of a borrower, such as a CD, bond, Treasury bill, or mortgage |
| Financial System | network of savers, investors, an financial institutions working together to transfer savings for investment uses |
| Financial Intermediary | institution that channels savings to investors |
| Nonbank Financial Institution | nondepository 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 number of yrs, reached certain age, or suffered injury |
| Pension Fund | fund collects and invests income until payments made to eligible recipients |
| Risk | situation in which outcome is not certain, but the probabilities can be estimated |
| Bond | contract to repay borrowed money and interest on borrowed money at regular future intervals |
| Coupon Rate | stated interest on a corporate, municipal, or gov 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 bond’s return |
| Junk Bond | bond carrying exceptionally high risk of nonpayment and a low rating |
| Municipal Bond | bond, often tax exempt, issued by state and local govs |
| Tax-Exempt | non subject to tax by fed or state gov |
| Savings Bond | low-denomination, non-transferable bond issued by fed gov |
| Beneficiary | person designated to take ownership of an asset if owner of asset dies |
| Treasury Note | U.S. gov obligation with maturity of 2 to 10 yrs |
| Treasury Bond | U.S. gov bond with maturity of 10 to 30 yr |
| Treasury Bill | short-term U.S. gov obligation with maturity of one yr or less in denominations of $1,000 |
| Individual Retirement Account (IRA) | retirement account in form of long-term time deposit with annual contributions not taxed until withdrawn during retirement |
| Capital Market | market in which financial capital is loaned and/or borrowed for more than one yr |
| Money Market | market where financial capital is loaned and/or borrowed for one yr or less |
| Primary Market | market in which only original issuer can sell or repurchase financial asset |
| Secondary Market | market where financial assets can be sold to someone other than original issuer |
| Equities | stocks that represent ownership shares in corporations |
| Stockbroker | person who buys or sells securities for investors |
| Efficient Market Hypothesis (EMH) | argument that stocks are always priced about right because they are closely watched (supply and demand) |
| Portfolio Diversification | strategy of holding diff 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 (collect money and then invest; diversify portfolio) |
| Net Asset Value (NAV) | the market value of mutual fund share found by dividing net value of fund by number of shares issued |
| 401(k) Plan | tax-deferred investment and savings plan that acts as a personal pension fund for employees |
| Stock Exchange | physical place where buyers and sellers meet to exchange securities |
| Securities Exchange | physical place where buyers and sellers meet to exchange securities |
| Over-the-Counter Market (OTC) | electronic marketplace for securities not listed on organized exchanges such as the NYSE |
| Dow Jones Industrial Average (DJIA) | measure of stock market performance based on 30 representative stocks |
| Standard & Poor's 500 (S&P 500) | measure of stock market performance based on 500 stocks traded on the NYSE, AME, and OTC market |
| Bull Market | period during which stock market prices move up for several months or yrs in a row |
| Bear Market | period during which stock market prices move down for several months or yrs in a row |
| Spot Market | market in which a transaction is made immediately at the prevailing price |
| Futures Contract | agreement to buy or sell at a specific date in the future at a predetermined price |
| Option | futures contract giving a buyer the right to cancel the contract |
| Call Option | futures contract giving buyer right to cancel a contract to buy something |
| Put Option | futures contract giving buyer right to cancel a contract to sell something |
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Damma15724
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