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Finance 319 Basic Terms

Finance 319 Basic Terms. Course Website http://www.citi.umich/u/galka/319 Galina Albert Schwartz Department of Finance University of Michigan Business School. Lookup of Basic Terms on the WWW: Glossaries. Chicago FED: http://www.frbchi.org/glossaries/glossaries.html

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Finance 319 Basic Terms

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  1. Finance 319 Basic Terms Course Website http://www.citi.umich/u/galka/319 • Galina Albert Schwartz • Department of Finance • University of Michigan • Business School Minimum GlossaryFinance 319

  2. Lookup of Basic Terms on the WWW: Glossaries • Chicago FED: http://www.frbchi.org/glossaries/glossaries.html • High Quality Economic Glossary http://www.amosweb.com/gls/ • Financial Terms [UK based Glossary] http://www.finance-glossary.com Minimum GlossaryFinance 319

  3. Lookup of Basic Terms on the WWW (cont.) • Glossary from Northwestern University http://econterms.com/ • Prof. Deardorff Glossary (U of M) http://www.umich.edu/~alandear/glossary/intro.html • Prof. Harvey, (Duke University) http://www.duke.edu/~charvey/Classes/wpg/glossary.htm Minimum GlossaryFinance 319

  4. Lookup of Basic Terms on the WWW (linked to URLs) • Chicago FED: Finance Glossaries • Research Glossary (Economics Department, Northwestern University) • High Quality Economic Glossary • Financial and Investment Terms (over than 2000 terms), UK based • Prof. Deardorff Glossary (Economics Department, University of Michigan) • Prof. Harvey Glossary, (Fuqua School of Business, Duke University) (more than 6000 terms) Minimum GlossaryFinance 319

  5. Basic Concepts I • Money and Money Functions • Balance of Payments • Perfectly Competitive Market • Imperfect Competition • Monopoly • Market Power • Prisoner’s Dilemma Minimum GlossaryFinance 319

  6. Money and Money Functions • Types of Money • Commodity Money • Fiat Money • Functions of Money, Levich, p.32 • 1. Medium of Exchange [goods, services, debt] • 2. Store of Value • 3. Unit of Account • Sterilization & Sterilized Intervention Minimum GlossaryFinance 319

  7. Current & Capital Account and Balance of Payments Current Account = Exports - Imports Capital Account = Investment - Savings Current Account + Capital Account = Official Balance of Payments Current Account + Capital Account = Changes in Reserves Minimum GlossaryFinance 319

  8. Basic Concepts II • Gains from Trade • Competitive Advantage • International division of labor • Specialization • Taxes • Rate of return on capital • Required return Minimum GlossaryFinance 319

  9. Basic Concepts III • Government credibility • Commitment • Commitment constraint • Optimal policies • Objective Function (or just objective) • Time inconsistent optimal policies Minimum GlossaryFinance 319

  10. Basic Concepts IV • Exchange rate • fixed • floating • pegged • currency board • Exchange rates • nominal versus real • Interest rates • nominal versus real Minimum GlossaryFinance 319

  11. Basic Concepts V • Capital controls • Transaction costs • Perfect Capital Market • zero transaction costs • no capital controls • zero taxes • no regulations • no uncertainty Minimum GlossaryFinance 319

  12. Basic Concepts VI • Time inconsistent optimal policies • Regulation • loss: costs of regulation • gain: benefits from regulation • net regulatory burden: gain – loss [net gain =gross gain minus loss] Minimum GlossaryFinance 319

  13. Basic Concepts VII • Expected value • Inflation rate • FED objective function is to keep: • 1. unemployment  • 2. inflation  [controversy between 1 & 2] • Hedging Minimum GlossaryFinance 319

  14. Basic Concepts VIII • Types of Risk (Levich, page 5) • counterparty • liquidity • delivery • rollover • Risk neutral & risk-averse • Costs and benefits analysis Minimum GlossaryFinance 319

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