Economics 230
Terms
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- Central Bank
- the financial institution that manages the government's finances, controls the availability of money and credit in the economy and serves as the bank to commercial banks.
- European Central Bank
- The central authority, located in Frankfurt, Germany, which oversees monetary policy in the common currency area.
- Federal Reserve System
- The central bank responsible for monetary policy in the US.
- Financial Instruments
- THe written legal obligation of one party to transfer something valuable (usually money) to another party at some future date, under certain conditions.
- Financial System
- The system that allows people to engage in economic transactions. It is composed of five parts': money, financial instruments, financial markets, financial institutions and central banks.
- Information
- A collection of facts. THe basis for the third core principle of money and banking: Information is the basis for decisions.
- Markets
- A virtual or physical place where goods, services and financial instruments are purchased and sold. The basis for the fourth core prinsiple of money and banking: markets set prices and allocate resources.
- Money
- As asset that is generally accepted as payment for goods and services or repayment of debt, acts as a unit of account and serves as a store of value.
- Risk
- A measure of undertainty about the future payoff to an investment, measured over some time horison and relative to benchmark. The basis for the second core principle of money and banking: Risk requires compensation.
- Stability
- Steady and lacking in variation. The basis for the fifth core principle of money and banking: Stability improves welfare.
- Time
- A measureable period during which something can happen. The basis for the first core principle of money and banking: time has value.
- Core Principles of Money and Banking
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1.Time has value.
2. Risk Requires Compensation.
3. Information is the basis for decisions.
4.Markets set prices and allocate resources.
5. Stability improves welfare. - Parts of Financial System
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1. Money
2. Financial Instruments
3. Financial Markets
4. Financial Institutions
5. Central Banks