CNN Student News - Financial Glossary

CNN Student News - Financial Glossary
Introduction: Use this CNN Student News financial glossary to help students
understand concepts about today's U.S. economy that are currently in the news.
Personal Finance
Bankruptcy: A legal procedure in which a court determines which debts must be paid
and which debts are eliminated. While the bankrupt individual no longer has debt, he/she
is unlikely to get new credit soon. Bankruptcy remains on your credit report for 10 years
and has a negative effect on your credit score.
Budget: A plan that estimates income and expenses in order to achieve financial goals.
Certificate of deposit (CD): A bank deposit with a fixed term that pays interest and
"matures" after the term is up. CDs pay a higher rate of interest than regular savings
accounts. Withdrawing money before a CD's maturity date may result in significant fees.
Chapter 7: A U.S. bankruptcy law that allows an individual or corporation to sell assets
in order to pay off debts.
Chapter 13: A U.S. bankruptcy law that allows an individual three to five years to pay
off debts.
Check: A document tied to a checking account that can be used in place of money to
purchase items from a vendor. The vendor then presents the check to a bank, essentially
demanding payment from the original buyer's bank. The money is then withdrawn from
the buyer's checking account.
Checking account: A bank account from which money can be withdrawn using checks.
Some checking accounts return interest, and others are tied to a debit card for instant
access to funds.
Credit: Money that a lender may extend to a borrower. The borrower generally promises
future payment with interest.
Credit card: A card that allows a person to purchase goods and services by paying with
money borrowed from a creditor. The borrower then repays the credit card company,
often with interest. The borrower doesn't always have to pay interest, because paying the
debt off on time might not result in interest being charged.
Credit counseling: Personal financial services including budget counseling and
education, debt management plans, financial literacy courses and housing counseling.
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Credit score: A three-digit number that indicates a borrower's ability to repay a loan,
indicating the level of risk a lender will have to accept. Credit scores, which are based on
credit history, may be used along with credit reports to reject or accept a loan, or may
determine the loan interest rate.
Currency: Government-issued coins and paper notes that may be used to exchange
goods and services; essentially, the physical representation of money.
Debit card: A card that allows an individual to transfer funds instantly from a bank
account.
Debt: The amount of goods, services or money that one owes to another.
Federal Insurance Contributions Act (FICA): Taxes that are paid into the Social
Security system. Social Security provides funds for a variety of federal social programs
primarily designed to provide for the health and welfare of the elderly.
Foreclosure: A legal action by which a borrower's rights to a mortgaged property are
taken away when the terms of the loan have not been satisfactorily met. The property is
then owned by the lender, typically a bank. Foreclosures are considered a last resort
because banks are in the business of making money from a loan's interest, not from
acquiring and selling houses.
401(k): An employer's retirement savings program into which individuals can put a
portion of their pay. Taxes are not paid until the money is withdrawn.
Gross income: An individual's income before taxes, health insurance and other
deductions are paid.
Interest: The cost of borrowing money, usually expressed as a fixed or variable
percentage.
Interest rate: A percentage the borrower must pay in addition to the amount borrowed.
For example, if $100 is borrowed, the borrower may need to pay the lender $110 over the
course of a year, meaning the interest rate is 10 percent. Generally, the more risk for the
lender, the higher the interest rate he will charge.
Money: A medium of exchange that allows goods and services to be bought and sold
without bartering or using credit. Money often is exchanged as currency.
Mortgage: A form of debt in which one can own property by paying the entire price over
time with interest. The borrower maintains all the rights, privileges and responsibilities of
a property owner as long as the conditions of the mortgage, such as monthly payments of
principal and interest, are met.
Net pay: The amount of income after all deductions and taxes are paid. Often known as
"take-home pay."
Progressive tax: A form of taxation in which individuals with higher incomes pay higher
tax rates than individuals with lower income. One example is the U.S. federal income tax.
Proportional tax: A form of taxation in which everyone pays the same tax rate in
proportion to his or her income.
Savings account: A bank account where money is stored and generally returns a
relatively low rate of interest.
Tax: Money paid to a government. Taxes paid by individuals may include income tax,
property tax and sales tax.
Taxable income: The income that remains after nontaxable deductions are paid.
Deductions that are applied "pre-tax" instead of "post-tax" will lower the overall income
tax paid.
Markets
Bear market: A declining stock market, where stock prices are dropping over a
continuous period of time.
Bull market: A rising market, where stock values are increasing over a continuous
period of time.
Bond: A loan taken out by a local, state or federal government, or by a corporation. Bond
certificates can be bought by individuals, who are essentially lending money to the bond
issuer.
Bond rating: A measure of a bond issuer's ability to repay a bond as well as the
repayment risks. Bonds that are rated AAA to BBB are considered investment-grade.
Bonds with lower ratings are "junk bonds" that pay a higher interest rate but have an
increased risk of default. Bonds that are in default are rated D.
Commodity: A raw material, such as wheat, corn, gold or oil, that can be sold.
Dow Jones Industrial Average ("Dow Jones"): The average price of 30 selected
industrial stocks, often used as a measure of general market trends.
Index fund: An investment whose performance is designed to mirror a particular stock
or bond market.
National Association of Securities Dealers Automated Quotations (NASDAQ):
America's largest electronic stock market. Many technology stocks such as Apple,
Microsoft and Yahoo are traded on NASDAQ.
New York Stock Exchange (NYSE): Established in 1792 on Wall Street in New York
City, this securities market is one of the world's largest. America's 10 largest
corporations, including Exxon, Ford, General Electric and Wal-Mart, are traded on the
NYSE.
Ponzi scheme: A type of fraud that uses money from new investors to pay off earlier
investors, while promising high rates of return. Ponzi schemes generally unravel when
the pool of new investors dries up.
Securities and Exchange Commission (SEC): A federal commission that regulates and
supervises U.S. financial markets to protect investors.
Security: A certificate issued by a corporation or government that has a value. Stocks
and bonds are the most common securities.
Service: The supplying of information or performance of an activity, rather than
supplying physical goods.
Stock: A share of ownership in a corporation.
Stock market: A place where shares, stocks and bonds are bought and sold.
Economics
Agrarian economy: An economy dominated by agricultural products; a pre-industrial
economy.
Bank: An institution that provides money-related services, such as loans and savings
accounts. Bank profits are based on the difference between borrowers' and depositors'
interest rates.
Balanced budget: Occurs when the government spends as much money as it generates in
revenue.
Bank run: A loss of confidence in a bank that leads to large withdrawals. The bank
cannot pay all its depositors at once, and fails. During the Great Depression, after
thousands of banks failed, laws were enacted to insure deposits and boost confidence in
banks.
Capital gain: An increase in the value of an asset between the time it is bought and the
time it is sold.
Capital gains tax: A tax on the sale of assets based on their increase in value.
Default: A condition that exists when a borrower cannot repay a loan.
Depression: An extreme decline in economic productivity that is more severe than a
recession.
Discount rate: The interest rate charged to other financial institutions when they borrow
from Federal Reserve banks.
Entitlement: Government funds issued to certain individuals because of a prescribed
need. Social Security, Medicare, veterans' benefits and food stamps are examples of
entitlement programs.
Federal Deposit Insurance Corporation (FDIC): A federal agency that insures bank
deposits for at least $100,000, increasing consumer confidence in the banking system and
preventing bank runs.
Federal funds rate: The interest rate set by The Fed that banks charge each other for
loans.
Federal Reserve System: The central banking authority of the United States. The system
includes 12 Federal Reserve banks, a Board of Governors and other important financial
committees.
Federal Reserve Board ("The Fed"): A regulatory body that determines U.S. monetary
policy. One tool used by The Fed is raising and lowering key interest rates, including the
discount rate and the federal funds rate.
Fort Knox: A U.S. Army base that includes the Bullion Depository, which holds the
nation's gold reserves.
Free trade: A policy in which tariffs are reduced or eliminated between nations to
promote trade.
The Great Depression: The most severe depression ever. It began in 1929, lasted almost
10 years and was caused by a decline in spending and production. The Great Depression
began after artificially high stock prices led to a stock market crash in October 1929.
During this period, thousands of banks failed, and more than 25 percent of Americans
were unemployed.
Gold standard: A term used when the currency of a country is backed by a quantity of
gold.
Gross domestic product (GDP): The total value of all goods and services produced
within one nation during a specific time.
Gross national product (GNP): The total value of goods and services produced by a
nation during a specific time. The GNP is equivalent to the GDP plus the country's
overseas investments.
Industrial economy: An economy dominated by manufactured goods.
Inflation: An overall rise in prices.
Inflation rate: The percent increase in prices.
Market economy: An economy dominated by buying and selling with little interference
from a centralized government.
Panic: A period of fear caused by an economic crisis, characterized by stock market
crashes or bank failures.
Personal property: Items, other than real estate, owned by an individual.
Poverty line: The amount of money required to meet basic needs.
Poverty rate: The percent of the population living below the poverty line.
Prime rate: The lowest interest rate charged to borrowers with the least risk of
defaulting.
Protectionism: A policy that protects domestic products by imposing tariffs, quotas and
other restrictions on foreign imports.
Real estate: Property that is tied to the land, particularly buildings and the land itself.
Recession: A significant decline in the economy over a prolonged period.
Service economy: An economy dominated by services rather than products.
Subsidy: Government assistance to pay for items that are in the public interest but cannot
be supported by the economy. Farmers are given subsidies to grow crops; cities may
subsidize public transportation.
Stagflation: A period of economic recession (stagnation) and high prices (inflation).
Subprime loan: A loan with a relatively high interest rate, often issued to a higher-risk
borrower.
Tariff: A tax imposed on imported goods. In addition to raising revenue, tariffs may
create an advantage for domestically produced goods.
Trade deficit: A condition that exists when the value of a nation's imports exceeds the
value of its exports.
Unemployment rate: The percentage of people who are seeking work but do not have
jobs. It is an important indicator of the health of a nation's economy.
U.S. Treasury Department: Maintains the finances of the U.S. government. The
Treasury Department produces U.S. currency, issues payments from the federal
government and borrows funds to keep the government running. The treasury secretary is
a Cabinet member who advises the president on financial matters.
Business Finance
Asset: A company's possession that has value.
Bailout: Emergency funds given to corporations in order to prevent their collapse. Funds
can come from the government or other institutions, can take many forms, and may or
may not require reimbursement.
Capital: A company's available resources. Financial capital is money; capital goods
include buildings, machinery and other equipment.
Chapter 11: U.S. bankruptcy code that allows a company to reorganize. The company is
generally placed under a group of trustees, and the terms of its debt are spread out over
time or reduced.
Credit rating: An indication of a business's ability to pay back its debts. A credit rating
determines how easily a company can get credit such as loans.
Demand: Consumer desire to purchase a commodity. Generally, the higher the demand
for an item, the higher its price (see "Supply").
Economy of scale: The relationship that occurs when increased efficiency lowers
manufacturing costs as more of a product is made. The price reduction may be passed on
to consumers.
In the black: Making a profit; not in debt.
In the red: Losing money, in debt.
Labor union: An association of workers created to improve working conditions.
Through collective bargaining, unions act as mediators between employees and
employers regarding wages, benefits and other issues.
Liability: A financial obligation, such as a debt.
Net worth: The total value of assets, minus liabilities.
Price ceiling: The highest price set by government regulators for a good or service.
Limiting prices is often intended to protect consumers.
Price floor: The lowest price allowable by regulators. Keeping prices from dropping too
low may help sellers.
Profit: Revenue minus costs. Also known as net income.
Revenue: The money that a company brings in before subtracting costs to calculate
profit. Also known as sales or gross income.
Share: A representation of ownership in a company. Publicly traded shares are often sold
on a stock market or an exchange. A share's value may fluctuate based on the company's
performance.
Shortage: A condition in which demand exceeds supply. Prices tend to go up.
Supply: The quantity of a commodity that is available to sell. Generally, a larger supply
yields a lower unit price. Lower supply creates higher demand, leading to a higher unit
price. (See "Demand")