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The Financial System
Terms for the final, 317 level college course.
55
Finance
Undergraduate 4
12/10/2007

Additional Finance Flashcards

 


 

Cards

Term
Advances
Definition
Discount window loan, fed increases the balance in borrowing institutions reserve account and has an officer of the institution sign a promissory note
Term
Autonomous spending
Definition
Spending independent (autonomous) of income. It is the spending that is required for the basics food, clothing, shelter. It would exist even when income is zero. Your cited equation is not correct for autonomous spending. It looks like you were starting an equation for GDP
Term

Cambridge Equation

Definition

Equation that expresses how much people are willing to spend depending on their income, i.e. $10 trillion in economy X

 

M to the D power=k * Y

 M is the total nominal quantity of money demanded for use as a medium of exchange

Y is the current-dollar income of consumers and businesses, and k is a fraction that represents the portion of current-dollar income that consumers and businesses wish to hold as money

Term

CAMELS

 

A:

Definition
Asset quality
Term

CAMELS


C:

Definition
Capital adequacy
Term

CAMELS

 

M:

Definition

Management quality
Term

CAMELS

 

E:

Definition
Earnings
Term

CAMELS

 

L:

Definition
Liquidity
Term

CAMELS 

 

S:

 

Definition

Sensitivity to Market Risk

Term
Capital goods
Definition
Goods that may be used to produce other goods or services in the future
Term
Capital market
Definition
Markets for financial instruments of one year or more.
Term
Certificates of deposit
Definition
Time deposits issued by banks and other depository institutions
Term

Commercial Loans

Definition
Long-term loans made by banks to businesses
Term
Commercial paper
Definition
A short-term debt instrument issued by businesses in lieu of borrowing form banks
Term
Contributory
Definition
Pensions, funded by both employer and employee contributions
Term
Controllable targets
Definition
Liabilities whose dollar amounts banks can directly manage
Term
Deposit multiplier
Definition
A number that tells how much aggregate transactions deposits at all depository institutions will change in response to a change in total reserves of these institutions
Term
Discount window loans
Definition
An instrument of monetary policy (usually controlled by central banks) that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions. Actually a percentage point above the federal funds rate.
Term
Fed funds rate
Definition
I n the United States this term is the interest rate at which private depository institutions lend balances at the Federal Reserve to other depository institutions, usually overnight.[
Term
FOMC
Definition
Federal Open Market Committee, The branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC is composed of the Board of Governors, which has seven members, and five reserve-bank presidents. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of the other reserve banks rotate in their service of one-year terms.
Term
FR Notes
Definition
A type of banknote issued by the Federal Reserve System and is the main type of paper currency in the United States.
Term
Humphrey-Hawkins
Definition
Full-Employment act The Act explicitly instructs the nation to strive toward four ultimate goals: full employment, growth in production, price stability, and balance of trade and budget. By explicitly setting requirements and goals for the federal government to attain, the Act is markedly stronger than its predecessor.
Term

Income elasticity

Definition
In economics, this term measures the responsiveness of the quantity demanded of a good to the change in the income of the people demanding the good. It is calculated as the ratio of the percent change in quantity demanded to the percent change in income. For example, if, in response to a 10% increase in income, the quantity of a good demanded increased by 20%, the income elasticity of demand would be 20%/10% = 2.
Term
Independent central bank
Definition
An "independent central bank" is one which operates under rules designed to prevent political interference; examples include the Reserve Bank of Australia,the Reserve Bank of India, the European Central Bank, the Bank of Canada, the Banco de la República de Colombia, Central Bank of Norway and the U.S. Federal Reserve.
Term
Intermediate target
Definition

An #### is a variable (such as the money supply) that is not directly under the control of the central bank, but that does respond fairly quickly to policy actions, is observable frequently and bears a predictable relationship to the ultimate goals of policy.

Term
Investment grade securities
Definition
Term used to describe bonds suitable for purchase by prudent investors.
Term
Liquidity premium
Definition
### is a term used to explain a difference between two types of financial securities (e.g. stocks), that have all the same qualities except liquidity.
Term
London Interbank Rate
Definition
The ### is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market).
Term
M1
Definition
Currency plus transaction deposits
Term
M2
Definition

M1+ savings and small-denomination time deposits and balances of money market mutual funds

Term
Mark-to-market
Definition
In accounting and finance, ### is the act of assigning a value to a position held in a financial instrument based on the current market price for that instrument or similar instruments. For example, the final value of a futures contract that expires in 9 months will not be known until it expires. If it is marked to market, for accounting purposes it is assigned the value that it would fetch in the open market currently.
Term
Monetary policy goals
Definition
 Internal goals – inflation goals – maintain low inflation.Output goals – prevent sharp swings in real GDP relative to its long-run level.Employment goals -  high employment External goals – International objectives and domestic goals – maintain exports to control equilibrium level of real GDP (imports = less consumption dollars, exports increases aggregate expenditures)External balance for its own sake – have more exports so internal businesses are happy that domestics are spending on their products
Term
Money multiplier
Definition
The most common mechanism used to generate money is typically called the ###. It measures the amount by which the commercial banking system increases the money supply. To control the amount of money created by the system, central banks place reserve ratios on the commercial banks which set the proportion of primary deposits the banks must hold as qualifying reserves.
Term
Multiplier
Definition
n Keynesian economic theory, a factor that quantifies the change in total income as compared to the injection of capital deposits or investments which originally fueled the growth. It is usually used as a measurement of the effects of government spending on income, and it can be calculated as one divided by the marginal propensity to save.
Term
Munis
Definition
A debt security issued by a state, municipality, or county, in order to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if you live in the state the bond is issued.
Term
OMO
Definition
Open market operations are the means of implementing monetary policy by which a central bank controls its national money supply by buying and selling government securities, or other instruments. Monetary targets, such as interest rates or exchange rates, are used to guide this implementation.
Term
Property casualty insurance
Definition
A broad category of coverage against loss of property, damage or other liabilities, including such things as vehicle insurance, liability insurance, theft insurance and elevator insurance.
Term
Real rates
Definition
 The "real interest rate" is the effective interest rate minus the inflation rate.
Term
Recognition lag
Definition
Interval that passes between the need for a countercyclical policy action and the recognition of this need by a policy maker
Term
Response lag
Definition
Interval between recognition of a need for a countercyclical policy action and the actual implementation of the policy action
Term
Transmission lag
Definition
Interval that elapses between the implementation of an intended countercyclical policy and its ultimate effects on an economic variable
Term

SDR

(Special Drawing Rights)

Definition
An international type of monetary reserve currency, created by the International Monetary Fund (IMF) in 1969, which operates as a supplement to the existing reserves of member countries. Created in response to concerns about the limitations of gold and dollars as the sole means of settling international accounts, ###s are designed to augment international liquidity by supplementing the standard reserve currencies.
Term
Speculative demand
Definition
### is the demand for financial assets, such as securities, money or foreign currency that is not dictated by real transactions such as trade, or financing. The need for cash to take advantage of investment opportunities that may arise.
Term
Spending multiplier
Definition
In economics, the multiplier effect refers to the idea that an initial spending rise can lead to even greater increase in national income. In other words, an initial change in aggregate demand can cause a further change in aggregate output for the economy
Term
Spot market
Definition
A market for contracts requiring the immediate sale or purchase of an asset
Term
Spread
Definition
Difference between the federal funds rate and the discount rate
Term
Store-of-value
Definition
Any form of commodity, asset, or money that has value and can be stored and retrieved over time.
Term
Sweep accounts
Definition
A bank account that, at the close of each business day, automatically transfers amounts that exceeds (or falls short of) a certain level into a higher-interest earning account.
Term
Big Mac Index
Definition
A survey done by The Economist that determines what a country's exchange rate would have to be for a Big Mac in that country to cost the same as it does in the United States. Purchase power parity (PPP) is the theory that currencies adjust according to changes in their purchasing power. With the Big Mac PPP, purchasing power is reflected by the price of a McDonald's Big Mac in a particular country. The measure gives an impression of how overvalued or undervalued a currency is.
Term
Transaction deposits
Definition
In the United States ### is a term used by the Federal Reserve for checkable deposits and other accounts that can be used directly as cash without withdrawal limits or restrictions. They are the only bank deposits that require the bank to keep reserves at the central bank. "Time deposits" can also be called "transaction deposits".
Term

Transactions deposits

Definition
In the United States ### is a term used by the Federal Reserve for checkable deposits and other accounts that can be used directly as cash without withdrawal limits or restrictions. They are the only bank deposits that require the bank to keep reserves at the central bank. "Time deposits" can also be called "###".
Term
Transactions demand
Definition
### is the demand for financial assets, e.g., securities, money or foreign currency. It is used for purposes of business transactions and personal consumption.
Term
U.S. Agency securities
Definition
The term “agency securities” is sometimes used by brokers, dealers and investment advisors to refer to securities issued or guaranteed by a variety of entities other than the U.S. Treasury. Agency securities are not the same as U.S. Treasury securities. An agency security represents a loan by the security purchaser (the investor) to the issuing entity and an investor should consider the different characteristics and different guarantees of agency securities.
Term

Velocity

Definition
A term used to describe the rate at which money is exchanged from one transaction to another.
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