Banking
Chapter 1: Why study money, banking, and financial markets?
Financial markets—markets in which funds are transferred from people who have
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surplus of available funds to people who have a shortage of available funds
Security—a claim on a borrower’s future income that is sold by the borrower to the
lender. Also called a financial instrument.
Asset—a financial claim or piece of property that is a store of value
Interest rate—the cost of borrowing or the price paid for the rental of funds (usually
expressed as a percentage per year)
Common stock—a security that is a claim on the earnings and assets of a company
Financial intermediaries—institutions (such as banks, insurance companies, mutual
funds, pension funds, and finance companies) that borrow funds from people who have
saved and then make loans to others
Banks—financial institutions (such as commercial banks, savings and loan associations,
and credit unions) that accept money deposits and make loans
Financial innovation—the introduction of new types of financial products in an economy
E-finance—a new means of delivering financial services electronically
Financial crisis—a major disruption in financial markets that is characterized by sharp
declines in asset prices and the failures of many financial and nonfinancial firms
Money (money supply)—anything that is generally accepted as payment for goods or
services or in the repayment of debts
Aggregate output—the total production of final goods and services in an economy
Unemployment rate—the percentage of the labor force not working
Business cycles—the upward and downward movement of aggregate output produced in
an economy
Recessions—a period during which aggregate output is declining
Monetary theory—the theory that relates the quantity of money and monetary policy to
changes in aggregate economic activity
Aggregate price level—the average price of goods and services in an economy
Inflation—the economic condition of a continually rising price level
Inflation rate—the rate of change of the price level, usually measures as a percentage
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