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Unit 8: Money, Banking, and Financial MarketsEconomics, Ms. LipsitzKey Terms ________ is anything that can be used to buy goods and services.Key TermsMoney is anything that can be used to buy goods and services.Key Terms_______ is a function of money where money is how we pay for goods and services.Key TermsMedium of exchange is a function of money where money is how we pay for goods and servicesKey TermsThe idea that money must be able to maintain its value over time is known as _____________.Key TermsThe ideas that money must be able to maintain its value over time is store of value. Key TermsThe idea that money needs to be measurable in such a way we can compare the price of one good to another is called_____________.Key TermsThe idea that money needs to be measurable in such a way we can compare the price of one good to another is called unit of account.Main IdeasWhat are the six characteristics of money?Main IdeasWhat are the six characteristics of money?DurabilityPortabilityUniformityAcceptabilityDivisibilityLimited Supply Main IdeasWhat are the three types of money?Main IdeasWhat are the three types of money?Commodity moneyRepresentative moneyFiat money

Key Terms__________ refers to any asset that can be used as cash or converted easily into cash.Key TermsLiquidity refers to any asset that can be used as cash or converted easily into cash. Main IdeasWhat makes up the money supply?Main IdeasWhat makes up the money supply?M1 (Liquidity)Cash Checking deposits/accounts Travelers checks- M2 (Near -money)M1Savings depositsCDsMoney market accountsKey Terms___________ are firms that deal with money between borrowers and savers. Key TermsFinancial institutions are firms that deal with money between borrowers and savers.

Main IdeasWhat are the four financial institutions? Main IdeasWhat are the four financial institutions?Commercial banksSavings and Loans AssociationsCredit UnionsFinance CompaniesKey Terms__________________ is a regulatory authority that insures, or guarantees, deposits in every account up to $25o,000.

Key TermsFederal Deposit Insurance Corporation (FDIC) is a regulatory authority that insures, or guarantees, deposits in every account up to $25o,000.

Main IdeasWhat are the functions of financial institutions? Main IdeasWhat are the functions of financial institutions? Storing and saving moneyLoansMortgagesCredit cards

Main IdeasWhat are some things that occur if a person doesnt pay back a loan?

Main IdeasWhat are some things that occur if a person doesnt pay back a loan?Negative credit reportRepossession of propertyGarnishing of wagesInability to obtain loans in the futureDeclare bankruptcyKey Terms__________ is the price you pay to borrow money.Key TermsInterest is the price you pay to borrow money.Main IdeasWhy do banks charge interest?Main IdeasWhy do banks charge interest?There is an opportunity cost that comes with the value of money over time, aka the time value of money. Banks charge interest on loans because they are taking into account the opportunity cost of putting that money to use elsewhere, such as investment in stocks or bonds.Interest rate not only reflects the opportunity cost of loaning the money, but also an additional amount that represents the banks profit from making the loan.

Key TermsAll of the money deposited at the bank goes into the same _______, money kept by the bank to meet their consumers demand.Key TermsAll of the money deposited at the bank goes into the same reserve, money kept by the bank to meet their consumers demand.

Key Terms_________________ is a banking system that requires banks to keep only a fraction of the funds in reserve and loan out the rest. Key TermsFractional reserve banking is a banking system that requires banks to keep only a fraction of the funds in reserve and loan out the rest.

Main IdeasWhy do people risk their finances when investing? Main IdeasWhy do people risk their finances when investing? - People risk because of the prospect of getting a return.Main IdeasWhat are you giving up when you invest?

What opportunity cost is associated with investing?Main IdeasWhat are you giving up when you invest?Liquidity

What opportunity cost is associated with investing?

When you invest, youre giving up the opportunity to do something with your money right now.

Main IdeasHow do we measure what youre giving up when you invest?Main IdeasHow do we measure what youre giving up when you invest?Rate of return on investment: percentage of how much you expect to get if you were to invest in somethingAKA: interest rateMain IdeasThe _____ the return, the ______ the risk of losing the investment.Main IdeasThe _____ the return, the ______ the risk of losing the investment.

The higher the return, the higher the risk of losing the investmentOr- The lower the return, the lower the risk of losing the investment. Main IdeasWhy would CDs and bonds be less riskier investments?Main IdeasWhy would CDs and bonds be less riskier investments?As long as you leave the money in a CD or bond, the money is guaranteed a specific rate of return.The only risk is that you dont have access to your money for a period of time. Main IdeasWhy would Sears and Twitter be riskier investments?Main IdeasWhy would Sears and Twitter be riskier investments?Subject to the pressures of their shareholders and financial markets in generalBuyers and sellers determine the prices of assets like stocks and bondsPrices of these assets are determined by supply and demandThese prices influence the rate of returnBuyers and sellers are going to make decisions based on any new financial information.Key Terms___________ is investment in a variety of financial assets to reduce risk. Key TermsDiversification is investment in a variety of financial assets to reduce risk.

Main IdeasWhat is the key to diversification?Main IdeasWhat is the key to diversification?- Key is to spread out your investments over a variety of products ranging from low risk to high risk