convert form securities into currency that can be used to purchase goods and services

Pizarro: son of Spanish colonel crossed the Atlantic to seek his fortune in 1502.  Explorer to extend empire of Castile.  Annihilated Atahuallpa’s civilization with horses and weaponry   

son of Incan emperor Huayna Capac.  Incan empire was torn by Spanish, Francisco Pizarro 

a hill called Cerro Rico that had a solid silver ore.  45000 tons of pure silver to be transformed into bars and coins

 Spanish Empire’s mountain of money.  Very dangerous to mine in the Cerro Rico mountains.  However Spain struck rich 

 Valer un potosi

to be worth a potosi-spanish expression meaning to be worth a fortune

Crusades

more focused on overcoming Europe’s monetary shortage as about converting heathens to Christianity

Spanish ‘piece of eight

based on the German thaler (dollar) became the world’s first truly global currency, financing not only the protracted wars Spain fought in Europe but also the rapidly expanding trade of Europe with Asia

Price Revolution

affected all of Europe from 1540’s-1640’s the cost of everything increased, inflation, finding too much silver means lower value

Resource curse

removing the incentives for more productive economy, while at the same time strengthening rent-seeking autocrats at the expense of representative assemblies 

Monetary Expansion

monetary policy that seeks to increase the size of the money supply.  In most nations, monetary policy is controlled by either a central bank or a finance ministry

Banknote

negotiable note issued by a bank and payable to the bearer on demand.  Amount payable is stated on the face of the note.  Banknotes are considered legal tender, along with coins, make up bearer forms of all modern money.  Pieces of paper which practically no worth, but are promises to pay someone

Alexander Hamilton

first Secretary of the US Treasury, on the $10 bill, 

Ben Bernanke

Chairman of the Federal Reserve System

Pay the bearer

pay the person responsible who lent you the money, but the person is not named

Credit

s when a borrower receives a loan from a creditor through a contractual agreement and will eventually pay it back in a later date, usually with interest

Principal

 amount borrowed or the amount still owed on a loan, separate from interest    

Usury

people who lent money at interest.  Christians believed that usury was a sin    

Loan shark

person or entity that charges borrowers interest above an established legal rate.  Charges interest rates illegal over the state limit.  Difficulty is that business is too small scale and risky to allow low interest rates.

Medici

very wealthy family from the Renaissance and they were wealthy because they were foreign exchange dealers: members of the Arte de Cambio (the moneychangers’ guild)  and bankers they did their business in the streets behind tables.  Notable more for violence than for high finance.  Importance of Medici’s early business were the bills of exchagen that had developed in the course of the middle ages as a way of financing trade.

Balance Sheets

financial statement that summarizes a company’s assets, liabilities, and shareholders’ equity at a specific point in time.  Three balance sheet segments give investors an idea as to what the company owns and owes; balancing assets and liabilitiesàwant more assets than liabiliites

Diversification

key to Medici’s success.  Risk management technique that makes a wide variety of investments within a portfolio.  THe rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

M-0

A measure of the money supply which combines any liquid or cash assets held within a central bank and the amount of physical currency circulating in the economy

A category within the money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds

money you can get from selling assets or anything 

Discount Rate

interest rate that an eligible depository institution is charged to borrow short term funds directly from a federal reserve bank.  Different types of loans are available from federal reserve banks and each corresponding type of credit has its own discount rate

Gold Standard

A monetary system in which a country’s govt allows its currency unit to be freely converted into fixed amounts of gold and vice versa.  The exchange rate under the gold standard monetary system is determined by the economic difference for an ounce of gold between 2 currencies.  The gold standard was mainly used from 1875 to 1914 and also during the intewar years, currency if set to a fixed amount of gold; exchanging money to gold, not as easy to loan money with gold standardàcant grow economy as fast

Illiquid

state of a security or other asset that cannot be easily be sold or exchanged for cash witout a substantial loss in value, cant get access to wealth or immediately convert asset to cash

Insolvency

when an individual or organization can no longer meet its financial obligations with its lender or lenders as debts become due; value of the liabilities exceed the value of the assetsàowe more than you have

Federal Reserve System

central bank of the US the Fed, as it regulates the US monetary policy  and financial system

Purposes-Control inflation and unemployment (lower interest rate to stimulate growth)

Deflation

 general decline in prices, often caused by a reduction in the supply of money or credit.  It can also be caused by increased govt spending

Bankruptcy

legal proceeding involving a person or business that is unable to repay outstanding debts.  liquidation or voluntary personal reorganization.  Bankruptcy as an unalienable right on par with life liberty and prsuit of happiness.  Encourage entrpreneurship to facilitate creation of new business. Some businesses must fall to become successful 

Credit boom

more lending and borrowing, not metallic anchor (gold) behind the dollars you can print as many dollars as you want.  Monetary expansion associated with easier and more widely available access to credit

inflation hedge 

real asset (like gold, diamonds, real estate) there is always a true value to it no matter inflation or the value of a dollar

loan or mortgage with an interest rate that will remain at a predetermined rate for the entire term of the loan

A large part of the money we put aside for our old age ends up being invested in the bond market.  Because of its huge size, and because big governments are regarded as the most reliable of borrowers, it is the bond market that sets long-term interest rates for the economy as a whole.  Bond prices fall, interest rates soar

Current yield

dividing the fixed interest rate by the market price (price paid)

This measure looks at the current price of a bond instead of its face value and represents the return an investor would expect if he or she purchased the bond and held it for a year

Default

currency depreciation, inability to pay interest or payment

Cost of Credit

interest rate on a benchmark bond

Excise Tax

an indirect tax charged on the sale of a particular good

Secondary market

allow investors to sell their bonds to other investors for cash, rather than issuing companies themselves

Face value

the nominal value or dollar value of a security stated by the issue.  For stocks, it is the original cost of the stock shown on the certificate.  For bonds, it is the amount paid to the holder at maturity, also known as par value or par

War Premium

the high interest rate on a bond when the govt is trying to tell bonds and they give back the lender with a high interest rate because a country is in debt because of war    

taxes and spending government getting together.  Money coming in money coming out

·Currency board or other regulatory committee that determine the size of rate of growth of the money and supply, which affects the interest rates.  Policy is maintained through interest rates or increasing amount of money in reserves

o   Federal Reserve controls monetary policy

§  Purposes-Control inflation and unemployment (lower interest rate to stimulate growth)