Finance review 1 What s a surplus unit 2 What s a deficit unit 3 What s the name of a company or individual that helps deficit units get money from surplus units Intermediary 4 2 financial markets money market short term capital market long term Know the difference 5 Examples for out investments in capital markets a bonds definition b stocks definition c mortgages definition 6 Example of money market security a Cd 7 Derivatives security short term investment with an asset backing Speculator uses derivative to bet whether it goes up or down and hedgers farmers and banks They are trying to reduce risk 8 Difference between primary market where the money initially comes from and secondary market where two investors trade with each other 9 Commercial bank make short term loans 10 Credit union different from band credit unions are strict to their membership Credit union usually gets better deals 11 Financial owners 1 5 types for demand a House hold supply money that is loaned out b Federal gvt interest inelastic interest rates don t affect their demand They can print money c Municipal gvt cant print money They can issue bonds and they can raise taxes They are tax free d Businesses corp they demand when they lower interest rates to expand They expect to make more profit e Foreign investors 2 Interest rate Risk premium default risk the risk you won t pay back Liquidity rate Term risk the longer the asset has to be paid the more of a risk to take Tax Status 3 Yield curve shows expectations in the economy a Upward sloping interest rates are gunna get better and should rise b Downward sloping expecting a recession and interest rates should fall c Flat and hump shaped uncertainty 4 If the economy is expected to grow the demand is going to rise This makes interest rates go up because they borrow as much as they can 5 If inflation is expected to start rising demand will go up for money right now so you ll have more money so when the price goes up you have more money Then interest rates will go up 6 We have a budget surplus This means the demand for money is low So interest rates will be lowered 7 Foreign investors decide to stop borrowing money in us Supply goes down Interest rates increase 1 Fed 4 parts a District banks 12 most important is NY b Board of govnrs 7 people elected for 14 years c FOMC 12 people 7 board of gvns and 5 district bank chairmen 2 Who is the chairmen Yellen 3 Discount rate the rate the govt will loan to banks fed can control lower the interest rate demand gets higher corporations will want to borrow more 4 Reserve requirement 10 in the vault if it is raised interest rates go up 5 Open market operations 6 If buy mortgage back securities they are trying to support the sale of houses 1 economic indicators study chart a basic difference leading tells what is going to happen in the future coincidence happens at the same time Lagging tells stuff like unemployment duration 2 Recognition lag takes a while to know theirs a problem impact lag takes a while to hit the economy Implementation lag 3 Inverse relationship between unemployment and inflation means that if one goes down one goes up This matters to the fed because they want to lower both at the same time That s their dual mandate 4 During weak econ conditions unemployment goes up and inflation goes down 5 Strong econ conditions unemployment goes down and inflation goes up 6 They are more worried about unemployment 7 GDP gross domestic product The fed cares because that tells us how or economy is doing Whether we need to lower or raise interest rates 50 q all multiple choice 40 straight terminology