Money Management and Investment Strategies

The fee borrowers pay lenders for using their funds, typically paid out as a fixed yearly payment known as a coupon.

A debt security that promises to pay a fixed amount of money on a specific maturity date, with a fixed yearly interest payment.

The face value of a bond, typically $1000, that is paid back to the bondholder on the maturity date.

The date when a bond matures and the face value is paid back to the bondholder.

The fixed yearly payment made to bondholders, determined by the bond's interest rate.

The relationship between the market price of existing bonds and interest rates, where higher bond prices result in lower interest rates and vice versa.

The specific interest rate a bond offers, also known as the bond's yield.

The process of determining the interest rate based on the bond's price, face value, maturity, and coupon. This means interest rates are indirectly set by the bond market.

The amount of money people want to hold for transactions, including cash and checking accounts.

The demand for money decreases as interest rates on checking accounts increase.

An increase in ATM fees would lead to fewer transactions, as people would withdraw larger amounts to avoid frequent fees.

The total amount of goods and services produced in an economy, measured in monetary terms.

The demand for money increases as nominal income increases.

The interest rate at which the quantity of money demanded equals the quantity of money supplied.

The amount of money available in the economy, controlled by the central bank.

The equilibrium interest rate is the point where the money supply and demand curves intersect.

The mismatch between the timing of money coming into a household and the timing of money going out for expenses.

The main reason people hold money - to buy things.

The amount of your financial assets you want to hold in cash (which doesn't earn interest) versus the amount you want to hold in interest-earning securities like bonds.

The estate's value would decrease because the return on the estate (2%) is lower than the return on securities (5%).To attract buyers, the estate's price would have to fall to offer a 5% return.

The price of an asset, like an estate, needs to adjust until the return on the asset equals the return on alternative investments in the market.

If the interest rates on securities fall, the estate's value would increase because the attractiveness of the estate, with its 2% return, becomes relatively higher compared to the lower-yielding securities.

Professor Serebryakov's proposal is flawed because he overlooks the fundamental principle of asset pricing - the return on an asset must be competitive with other investments in the market.

In the case of Professor Serebryakov's estate, the return on the estate (2%) is lower than the return on securities (5%).Therefore, investors would only buy the estate if its price fell to the point where it offered a 5% return.

A monetary policy that lowers interest rates to stimulate economic growth.

A monetary policy that raises interest rates to combat inflation.

The desire to hold money for potential future investments or transactions.

The relationship between interest rates on securities of different maturities.

A theory explaining the term structure of interest rates, stating that the long-term rate is the average of expected future short-term rates.

An increase in the money supply, leading to a lower interest rate.

An increase in nominal income (total goods and services produced in an economy, measured in monetary terms) shifts the money demand curve to the right, resulting in a higher equilibrium interest rate.

The interest rate at which the quantity of money demanded equals the quantity of money supplied.

The amount of money available in the economy, controlled by the central bank.

The point where the money supply and demand curves intersect, determining the equilibrium interest rate.

The inverse relationship between the market price of existing bonds and interest rates.

The Fed can increase the money supply until the intersection of the supply and demand curves for money occurs at or near zero interest rate, preventing it from stimulating the economy further.

The central bank can change the interest rate and the money supply through open market operations, but we haven't yet discussed why they might do so.

The optimal money holdings for an individual are determined by the balance between the opportunity cost of holding money (lost interest) and the cost of switching between money and bonds.

The cost of switching from bonds to money is the fee paid for each transaction.

The opportunity cost of holding money is the interest income foregone by not holding bonds.

The net profit from holding money is determined by subtracting the cost of switching from the interest earned.

The number of switches refers to the frequency of switching between money and bonds.

The average money holdings represent the average amount of money held by an individual over a given period.

The average bond holdings represent the average amount of money invested in bonds over a given period.

The interest earned is the income generated from holding bonds.