Vocab I
The ability for an asset to be quickly turned to cash.
What is liquidity?
The value of accumulated savings.
What is wealth?
A requirement to pay money in the future.
What is a liability?
Policies that guarantee a payment to a policyholder’s beneficiaries when the policyholder dies.
What is life insurance?
The price, calculated as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their savings for one year.
What is interest rate?
A claim on a tangible object that gives the owner the right to dispose of the object as they wish.
What is a physical asset?
A paper claim that entitles the buyer to future income from the seller.
What is a financial asset?
A financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those funds to finance borrower’s investment spending on illiquid assets.
What is a bank?
The difference between tax revenue and government spending when tax revenue exceeds gov’t spending.
What is the budget surplus?
The difference between tax revenue and gov’t spending when gov’t spending exceeds tax revenue.
What is the budget deficit?
A lending agreement between an individual lender and an individual borrower.
What is a loan?
A financial intermediary that creates a stock portfolio and then resells shares of this portfolio to individual investors.
What is a mutual fund?
Investing in several different assets with unrelated risks.
What is diversification?
The expenses of negotiating and executing a deal.
What is a transaction cost?
Uncertainty about future outcomes that involve financial losses and gains.
What is a financial risk?
An institution that transforms the funds it gathers from many individuals into financial assets.
What is a financial intermediary?
Occurs when a borrower fails to make payments as specified by the loan or bond contract.
What is a default?
An asset created by pooling individual loans and selling shares in that pool.
What is a loan-backed security?
Assets that cannot be quickly converted to cash without loss of value.
What are illiquid assets?
A nonprofit institution that invests the savings of members and provides them with income when they retire.
What is a pension fund?