Chapter 15

Question 1

money

Answer 1

object that is portable, divisible, durable, and stable, and that serves as a medium of exchange, a store of value, and a measure of worth

Question 2

M-1

Answer 2

measure of the money supply t5hat includes on the most liquid (spendable) forms of money

Question 3

currency (cash)

Answer 3

government-issued paper money and metal coins

Question 4

check

Answer 4

demand deposit order instructing a bank to pay a given sum to a specified payee

Question 5

checking account (demand deposit)

Answer 5

bank account funds, owned by the depositor, that may be withdrawn at any time by check or cash

Question 6

M-2

Answer 6

measure of the money supply that includes all the components of M-1 plus the forms of money that can be easily converted into spendable forms

Question 7

time deposit

Answer 7

bank funds that have a fixed term of time to maturity and cannot be withdrawn earlier or transferred by check

Question 8

money market mutual fund

Answer 8

fund of short-term, low-risk financial securities purchased with the pooled assets of investor-owners

Question 9

commercial bank

Answer 9

company that accepts deposits that it uses to make loans, earn profits, pay interest to depositors, and pay dividends to owners

Question 10

savings and loan association (S&L)

Answer 10

financial institution accepting deposits and making loans primarily for home mortgages

Question 11

mutual savings bank

Answer 11

financial institutions whose depositors are owners sharing in its profits

Question 12

credit union

Answer 12

nonprofit, cooperative financial institution owned and run by its members, usually employees of a particular organization

Question 13

pension fund

Answer 13

nondeposit pool of funds managed to provide retirement income for its members

Question 14

insurance company

Answer 14

nondeposit institution that invests funds collected as premiums charged for insurance coverage

Question 15

securities investment dealer (broker)

Answer 15

financial institution that buys and sells stocks and bonds both for investors and for its own accounts

Question 16

prime rate

Answer 16

interest rate available to a bank’s most creditworthy customers

Question 17

individual retirement account (IRA)

Answer 17

tax-deferred pension fund that wage earners set up to supplement retirement loans

Question 18

trust services

Answer 18

management by a bank of an estate, investments, or other assets on behalf of an individual

Question 19

letter of credit

Answer 19

bank promise, issued for a buyer, to pay a designated firm a certain amount of money if specified conditions are met

Question 20

banker’s acceptance

Answer 20

bank promise, issued for a buyer, to pay a designated firm a specified amount at a future date

Question 21

electronic funds transfer (EFT)

Answer 21

communication of fund-transfer information over wire, cable, or microwave

Question 22

automated teller machine (ATM)

Answer 22

electronic machine that allows bank customers to conduct account-related activities 24 hours a day, 7 days a week

Question 23

federal deposit insurance corporation (FDIC)

Answer 23

federal agency that guarantees the safety of deposits up to $100,000 in the financial institutions that it insures

Question 24

federal reserve system (The FED)

Answer 24

central bank of the US, which acts as the government’s bank, serves member commercial banks, and controls the nation’s money supply

Question 25

monetary policy

Answer 25

management of the nation’s economic growth by managing the money supply and interest rates

Question 26

reserve requirement

Answer 26

percentage of its deposits that a bank must hold in cash or on deposit with the Fed

Question 27

discount rate

Answer 27

interest rate at which member banks can borrow money from the Fed

Question 28

federal funds rate (key rate)

Answer 28

interest rate at which commercial banks lend reserves to each other, usually overnight

Question 29

open-market operations

Answer 29

the Fed’s sale and purchase of securities in the open market

Question 30

debit card

Answer 30

plastic card that allows an individual to transfer money between accounts

Question 31

point-of-sale (POS) terminal

Answer 31

electronic device that tr4ansfers funds from the customer’s bank account to pay for retail purchases

Question 32

smart card

Answer 32

credit-card-sized plastic card with an embedded computer chip that can be programmed with electronic money

Question 33

world bank

Answer 33

UN agency that provides a limited scope of financial services, such as funding improvements in underdeveloped countries

Question 34

international monetary fund (IMF)

Answer 34

UN agency consisting of about 150 nations that have combined resources to promote stable exchange rates, provide temporary short-term loans, and serve other purposes