85 Glossary of Key Terms (Part I)

Bureau of Labor Statistics
a group within the United States Department of Labor that is the primary fact-finding agency for the US government in the fields of labor, statistics, and economics; serves as the principal agency of the US Federal Statistical System
compounding interest
the continual addition of interest to the original principal sum of a loan or deposit, often referred to as interest on interest
compounding period
the period between points in time when interest is paid or added to the principal
consumer price index (CPI)
a measure that examines the weighted average of prices of a basket of consumer goods and services such as transportation, food, and medical care
discount rate
the interest rate used to determine the present value of future cash inflows
Federal Reserve
the central bank system of the United States
financial instrument
an asset or bundle of assets, including monetary contracts between parties, that can be bought, sold, or traded for financial gain
financial risk
the possibility of losing money or purchasing power on an investment, business transaction, or venture or simply due to inflation
Fisher effect
an economic theory created by economist Irving Fisher that describes the relationship between inflation and both real and nominal interest rates
future value (FV)
the value that a current amount will grow to at a given interest rate over a given period of time
gross domestic product (GDP)
the total value of goods produced and services provided in a country during one year
growth rate
the percentage increase of a specific variable within a specific time period; synonymous with interest rate in the context of the time value of money
interest
the amount of money that is paid by a borrower to a lender for the use of their money, typically calculated from an annualized rate
investment
an asset or item acquired with the goal of generating financial gain through increased income or appreciation in value
liquid asset
an asset that can be readily converted into cash within a short period of time
money market investments
low-risk financial instruments such as T-bills, federal notes, commercial paper, certificates of deposit (CDs), repurchase agreements (repos), and bankers’ acceptances, among others
money supply
the total dollar value of legal tender that is available to consumers within an economy at any single point in time
opportunity cost
the loss of potential gain from other alternatives when a single alternative is chosen
present value (PV)
the current value of a future amount, calculated by discounting the future value back at a known discount or interest rate for a specified period of time
real interest rate
a rate of interest that has been adjusted to account for the effects of inflation
single payment or lump sum
a single payment or deposit made at one time, as opposed to a number of smaller payments or deposits made in installments
time value of money (TMV)
the concept that an amount of money is worth more today than the exact same amount of money at some point in the future
Treasury investments
debt obligations such as T-bills (Treasury bills), bonds, and notes issued by the US Department of the Treasury
underinvested
describes an insufficient amount of investment or an investment that is earning an insufficient rate of interest
uninvested
describes cash that is being held in reserve, is not invested in an account or financial instrument, and is not earning interest or any return

 

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This chapter is from “Principles of Finance”  https://openstax.org/books/principles-finance/pages/1-why-it-matters by Dahlquist and Knight. This book is licensed under the CC-BY 4.0 license. 2022 OpenStax.

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