Sections
Key Terms
Key Terms
- asset
- an item of value owned by a firm or an individual
- asset–liability time mismatch
- a bank’s liabilities can be withdrawn in the short term, while its assets are repaid in the long term
- balance sheet
- an accounting tool that lists assets and liabilities
- bank capital
- a bank’s net worth
- barter
- literally, trading one good or service for another without using money
- coins and currency in circulation
- the coins and bills that circulate in an economy that are not held by the U.S Treasury, at the Federal Reserve Bank, or in bank vaults
- commodity money
- an item that is used as money, but which also has value from its use as something other than money
- commodity-backed currencies
- dollar bills or other currencies with values backed up by gold or another commodity
- credit card
- a short-term loan; money is transferred from the credit card company’s checking account to the seller, and at the end of the month the credit card user owes the money to the credit card company
- debit card
- an instruction to the user’s bank to transfer money directly and immediately from your bank account to the seller, like a check
- demand deposit
- a checkable deposit in a bank that is available by making a cash withdrawal or writing a check
- depository institution
- an institution that accepts money deposits and then uses these funds to make loans
- diversify
- making loans or investments with a variety of firms to reduce the risk of being adversely affected by events at one or a few firms
- double coincidence of wants
- a situation in which two people each want some good or service that the other person can provide
- fiat money
- currency with intrinsic value but is declared by a government to be the legal tender of a country
- financial intermediary
- an institution that operates between a saver with financial assets to invest and an entity who will borrow those assets and pay a rate of return
- liability
- any amount or debt owed by a firm or an individual
- M1 money supply
- a narrow definition of the money supply that includes currency and checking accounts in banks and, to a lesser degree, traveler’s checks
- M2 money supply
- a definition of the money supply that includes everything in M1, but also includes savings deposits, money market funds, and certificates of deposit
- medium of exchange
- any widely accepted method of payment
- money
- serves society with four functions: as a medium of exchange, a store of value, a unit of account, and a standard of deferred payment
- money market fund
- the deposits of many investors that are pooled together and invested in a safe way, such as short-term government bonds
- money multiplier formula
- the total quantity of money in the economy divided by the original quantity of money, or the change in the amount of total money in the economy divided by the change in the original amount of money
- net worth
- the excess of the asset value over and above the amount of the liability; total assets minus total liabilities
- payment system
- helps an economy exchange goods and services for money or other financial assets
- reserves
- funds that a bank keeps on hand and that are not loaned out or invested
- savings deposit
- a bank account where you cannot withdraw money by writing a check, but you can withdraw the money at a bank or transfer it easily to a checking account
- smart card
- a card that stores a certain value of money and then can be used to make purchases
- standard of deferred payment
- states that money must be acceptable to make purchases today that will be paid in the future
- store of value
- something that serves as a way of preserving economic value that can be spent or consumed in the future
- T-account
- a balance sheet with a two-column format, with the T-shape formed by a vertical line down the middle and a horizontal line under the column headings Assets and Liabilities
- time deposit
- an account that the depositor has committed to leaving in the bank for a certain period of time in exchange for a higher rate of interest; also called a certificate of deposit
- transaction costs
- costs associated with finding a lender or a borrower of money
- unit of account
- the common way in which market values are measured in an economy