1. 01.10.2001Minimum GlossaryFinance 3191 Finance 319 Basic Terms Course Website http://www.citi.umich/u/galka/319 u Galina Albert Schwartz Galina Albert Schwartz u Department of Finance u University of Michigan University of Michigan u Business School Business School

2. 01.10.2001Minimum GlossaryFinance 3192 Lookup of Basic Terms on the WWW: Glossaries u Chicago FED: http://www.frbchi.org/glossaries/glossaries.html u High Quality Economic Glossary http://www.amosweb.com/gls/ u Financial Terms [UK based Glossary] http://www.finance-glossary.com

3. 01.10.2001Minimum GlossaryFinance 3193 Lookup of Basic Terms on the WWW (cont.) u Glossary from Northwestern University http://econterms.com/ u Prof. Deardorff Glossary (U of M) http://www.umich.edu/~alandear/glossary/intro.html u Prof. Harvey, (Duke University) http://www.duke.edu/~charvey/Classes/wpg/glossary.htm

4. 01.10.2001Minimum GlossaryFinance 3194 Lookup of Basic Terms on the WWW (linked to URLs) u Chicago FED: Finance Glossaries Chicago FED: Finance Glossaries u Research Glossary (Economics Department, Northwestern University) Research Glossary (Economics Department, Northwestern University) u High Quality Economic Glossary High Quality Economic Glossary u Financial and Investment Terms (over than 2000 terms), UK based Financial and Investment Terms (over than 2000 terms), UK based u Prof. Deardorff Glossary (Economics Department, University of Michigan) Prof. Deardorff Glossary (Economics Department, University of Michigan) u Prof. Harvey Glossary, (Fuqua School of Business, Duke University) (more than 6000 terms) Prof. Harvey Glossary, (Fuqua School of Business, Duke University) (more than 6000 terms)

5. 01.10.2001Minimum GlossaryFinance 3195 Basic Concepts I u Money and Money Functions u Balance of Payments u Perfectly Competitive Market u Imperfect Competition u Monopoly u Market Power u Prisoner’s Dilemma

6. 01.10.2001Minimum GlossaryFinance 3196 Money and Money Functions u Types of Money –Commodity Money –Fiat Money u Functions of Money, Levich, p.32 –1. Medium of Exchange [goods, services, debt] –2. Store of Value –3. Unit of Account u Sterilization & Sterilized Intervention

7. 01.10.2001Minimum GlossaryFinance 3197 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

8. 01.10.2001Minimum GlossaryFinance 3198 Basic Concepts II u Gains from Trade u Competitive Advantage u International division of labor u Specialization u Taxes u Rate of return on capital u Required return

9. 01.10.2001Minimum GlossaryFinance 3199 Basic Concepts III u Government credibility u Commitment u Commitment constraint u Optimal policies u Objective Function (or just objective) u Time inconsistent optimal policies

10. 01.10.2001Minimum GlossaryFinance 31910 Basic Concepts IV u Exchange rate –fixed –floating –pegged –currency board u Exchange rates –nominal versus real u Interest rates –nominal versus real

11. 01.10.2001Minimum GlossaryFinance 31911 Basic Concepts V u Capital controls u Transaction costs u Perfect Capital Market –zero transaction costs –no capital controls –zero taxes –no regulations –no uncertainty

12. 01.10.2001Minimum GlossaryFinance 31912 Basic Concepts VI u Time inconsistent optimal policies u Regulation –loss: costs of regulation –gain: benefits from regulation –net regulatory burden: gain – loss [net gain =gross gain minus loss]

13. 01.10.2001Minimum GlossaryFinance 31913 Basic Concepts VII u Expected value u Inflation rate u FED objective function is to keep: –1. unemployment  –2. inflation  [  controversy between 1 & 2] u Hedging

14. 01.10.2001Minimum GlossaryFinance 31914 Basic Concepts VIII u Types of Risk (Levich, page 5) –counterparty –liquidity –delivery –rollover u Risk neutral & risk-averse u Costs and benefits analysis