Glossary BA: Money

 

Key Term

Definition

money

Anything that people generally accept as payment for goods and services.

fiat money

Money without intrinsic value that is used as money because of government decree.

financial system

The group of institutions in the economy that help to match one person's saving with another person's investment.

medium of exchange

An item that buyers give to sellers when they want to purchase goods and services.

store of value

An item that people can use to transfer purchasing power from the present to the future.

measure of value

The yardstick with which people post prices and record debts.

acceptability

A feature of money: everybody is willing to exchange goods and services against it.

divisibility

A feature of money: it can be broken down into small units for payment.

portability

A feature of money: it is easy to take with you.

stability

A feature of money: the value of it doesn't change much over time.

durability

A feature of money: using it doesn't affect its physical form.

difficulty to counterfeit

A feature of money: it is hard to duplicate it unlawfully.

paper money

Slips of paper that are used for making payments.

coins

Metal pieces that are used for making payments.

currency

The paper bills and coins in the hands of the public.

checking accounts

Money stored in an account at a bank or other financial institution that can be withdrawn without advance notice; also known as a demand deposit.

demand deposit

The technical name for a checking account; the money in a demand deposit can be withdrawn anytime on demand from the owner.

near money

Assets that are easily turned into cash but cannot be used directly as a medium of exchange.

savings accounts

An account with funds that usually cannot be withdrawn without advance notice; also known as a time deposit.

time deposit

The technical name for a savings account; the bank can require prior notice before the owner withdraws money from a time deposit.

money market accounts

Accounts that offer higher interest rates than standard bank rates but with greater restrictions.

certificate of deposit (CD)

A deposit of a specified sum of money for a specified period of time that cannot be redeemed prior to the date specified.

credit card

Any card, plate, or coupon book that may be used repeatedly to borrow money or buy goods and services on credit.

debit card

A card that resembles a credit card but which debits a transaction account (checking account) with the transfers occurring contemporaneously with the customer's purchases. A debit card may be machine readable, allowing for the activation of an automated teller machine or other automated payments equipment.

Federal Reserve System

The central bank of the United States, created by Congress and made up of a seven-member Board of Governors in Washington, DC, twelve regional Federal Reserve Banks, and their twenty-five Branches.

monetary policy

A central bank's actions to influence short-term interest rates and the supply of money and credit, as a means of helping to promote national economic goals. Tools of U.S. monetary policy include open market operations, discount rate policy, and reserve requirements.

open market operation

Purchases and sales of government and certain other securities in the open market, through the Domestic Trading Desk at the Federal Reserve Bank of New York as directed by the Federal Open Market Committee. Open market operations influence short-term interest rates and the volume of money and credit in the economy. Purchases inject reserves into the banking system and stimulate growth of money and credit; sales do the opposite.

reserve requirement

A percentage of commercial banks' checking and savings accounts that must be physically kept in the bank.

discount rate

The interest rate that the Fed charges for loans to member banks.

credit control

The authority to establish and enforce credit rules for financial institutions and some private investors.

check clearing

The movement of checks from the banks or other depository institutions where they are deposited back to those on which they are written, and funds movement in the opposite direction. This process results in credits to accounts at the institutions of deposit and corresponding debits to accounts at the paying institutions. The Federal Reserve participates in check clearing through its nationwide facilities, though many checks are cleared by private sector arrangement.

clearinghouse

An institution where mutual claims are settled between accounts of member depository institutions. Clearinghouses among banks have traditionally been organised for check-clearing purposes, but more recently have cleared other types of settlements, including electronic fund transfers.

bank

An organisation that intermediates between borrowers and lenders of money.

commercial bank

A profit-making organisation that receives deposits from individuals and corporations in the form of checking and savings accounts and then uses some of these funds to make loans.

credit union

Financial cooperative organisation of individuals who have a common bond, such as a place of employment, residence, or membership in a labour union. Credit unions accept deposits from members, pay interest (in the form of dividends) on the deposits out of earnings, and use their funds mainly to provide consumer instalment loans to members.

savings and loan association

Financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages; also called thrifts.

mutual savings bank

Financial institutions similar to savings and loan associations except that they are owned by their depositors.

nonbanks

Financial organisations that accept no deposits but offer many of the services provided by regular banks (pension funds, insurance companies, commercial finance companies, consumer finance companies, and brokerage houses).

insurance companies

Businesses that protect their clients against financial losses from certain specified risks in exchange for a fee.

pension fund

Managed investment pools set aside by individuals, corporations, unions, and some nonprofit organisations to provide retirement income for members.

mutual fund

An entity that pools individual investors' funds and invests them in large numbers of well-diversified securities.

brokerage firms

Firms that buy and sell stocks, bonds, and other securities for their customers and provide other financial services.

nonfinancial firms

Manufacturing firms that added financial services to their traditional portfolio of goods and services.

finance companies

Businesses that offer short-term loans at higher interest rates than banks.

electronic banking

Paperless transactions with a bank.

electronic funds transfer (EFT)

A computerised system that electronically performs financial transactions such as making purchases, paying bills, and receiving paychecks.

automated teller machine (ATM)

The most familiar form of electronic banking, which dispenses cash, accepts deposits, transfers funds from one account to another, and displays a customer's account balance.

automated clearinghouse (ACH)

A system that permits payments such as deposits or withdrawals to be made to and from a bank account by magnetic computer tape.

home banking

Making financial transactions from your home by use of personal computers and telephone lines.