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Ch 10 Definitions
Investments
| Term | Definition |
|---|---|
| M1 | The portion of the money supply that is composed of currency, demand deposits, and other liquid deposits |
| M2 | Includes M1 plus savings and time deposits, certificates of deposits, and money market funds, all of which are less liquid than the components of M1 |
| Capital Asset Pricing Model | A pricing model used often to describe the relationship between systematic risk and expected return for stocks |
| Consumer Confidence Index (CCI) | An indicator providing an indication of expected future developments of households’ consumption and saving, based upon answers to a survey regarding their expected financial situation, their sentiment about the general economic situation, unemployment, an |
| Consumer Price Index (CPI) | A measure of the average change over time in the prices paid by urban consumers for a typical market basket of consumer goods and services |
| Consumer Sentiment Index (CSI) | An economic indicator produced by the University of Michigan that measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation |
| Contractionary Monetary Policy | A type of monetary policy that is intended to cut back on the rate of monetary expansion to fight inflation |
| Default Premium | An additional amount of interest rate necessary to induce an investor to invest their money in a risky security instead of an otherwise equivalent risk-free security |
| Deficit Spending | Government spending, in excess of revenue raised from taxes, of funds raised by borrowing |
| Deflation | A general decline in the price level of goods and services |
| Depository Institutions | A financial institution in the United States (such as a savings bank, commercial bank, savings and loan association, or credit union) that is legally allowed to accept monetary deposits from consumers |
| Discount Rate | The interest rate charged to commercial banks and other financial institutions for short-term loans they take from the Federal Reserve Bank |
| Dow Jones Industrial Average (DJIA) | A stock market index of 30 prominent companies listed on stock exchanges in the United States; its components are weighted by their market prices |
| Fed | A name for the Federal Reserve System, which is the central bank of the United States and is charged with maximizing employment, stabilizing prices, moderating long-term interest rates, supervising and regulating banks, maintaining the stability of the fi |
| Federal Funds Rate | The overnight interest rate that banks charge each other to borrow or lend excess reserves |
| Financial Institutions | A company engaged in the business of dealing with financial and monetary transactions, such as deposits, loans, investments, and currency exchange; types of financial institutions include banks, brokerage firms, insurance companies, trust companies, and i |
| Fiscal Policy | The use of government spending and taxation to influence the economy |
| Great Depression | A severe worldwide economic depression that took place mostly during the 1930s and was prompted by the U.S. stock market crash of October 1929 |
| Gross Domestic Product (GDP) | The monetary value of all finished goods and services made within a country; usually calculated for years or quarters |
| Gross National Product (GNP) | GNP for a country is equal to GDP plus residents’ investment income from overseas investments minus foreign residents’ investment income earned within that country |
| Inflation Premium | An interest rate adjustment necessary to compensate an investor for expected inflation |
| Liquidity/Marketability Premium | An interest rate adjustment necessary to get an investor to invest their money in a security that might take time or require a discount to sell |
| Nominal Interest Rate | The quoted rate on an investment |
| Open Market Operations | An instance of a central bank buying or selling short-term Treasuries and other securities in the open market in order to influence the money supply, thus influencing short-term interest rates |
| Personal Consumption Expenditure (PCE) | A measure of imputed household expenditures defined for a period of time |
| Producer Price Index (PPI) | A measure of the average selling prices received by domestic producers for their output |
| Real Risk-Free Rate | The theoretical interest rate of an investment that carries zero risk; because even Treasury securities carry the risk of unexpected inflation, the risk-free rate is unobtainable in reality |
| Recessions | A period of temporary economic decline during which trade and industrial activity both go down; by common consensus, recessions are generally agreed to occur if GDP falls in two successive quarters |
| Reserve Requirement | The amount of cash that banks must have on hand, in their vaults or in their account at the closest Federal Reserve bank, to return deposits when customers demand them |
| Subprime Lending | The practice of lending to borrowers with low credit ratings |
| Surplus | An amount of an item in an economy that is more than people demand |
| Term Premium | An interest rate adjustment necessary to get an investor to invest their money in a security that will take longer to earn a return |
Created by:
Khall1229