The Scope of Financial Economics as a Discipline
What is the study of how individuals and organizations allocate financial resources over time called?
Financial economics
What system connects savers and borrowers?
Financial system
Who makes financial decisions about consumption and saving at the individual level?
Household
What market allows companies to raise capital by selling shares?
Stock market
What is the possibility of losing money in an investment called?
Financial risk
What is the process of allocating money to generate future returns called?
Investment
Which financial institution accepts deposits and provides loans?
Commercial bank
What is the money left after paying all expenses called?
Savings
What financial market deals with short-term borrowing and lending?
Money market
What is the risk caused by changes in currency exchange rates called?
Exchange rate risk
What is the additional return expected for taking on greater uncertainty called?
Risk premium
What is the market where newly issued securities are sold?
Primary market
What is the relationship between risk and expected return called?
Risk-return trade-off
What market is used for trading currencies?
Foreign exchange market
What is the strategy of reducing financial risk by taking an opposite position called?
Hedging
Which economic concept explains the value of money received today compared to the same amount received in the future?
Time value of money
What is the transfer of funds from savers to borrowers called?
Financial intermediation
What is the process of dividing investments among different assets called?
Diversification
What theory suggests that asset prices reflect available information?
Efficient Market Hypothesis
Which financial contract gives the right, but not the obligation, to buy or sell an asset?
Option
What is the process of evaluating the profitability and risks of financial decisions called?
Financial analysis
What type of financial system relies mainly on banks rather than capital markets?
Bank-based system
What is the reduction in the value of money caused by rising prices called?
Inflation
What model explains the relationship between an asset's expected return and systematic risk?
CAPM
What institution issues a country's national currency?
Central bank