Question 1

What is a financial asset?

Accepted Answer

A financial asset is a non-physical representation of ownership that has financial value for its owner

(stocks, bonds, cash, etc.)

Question 2

What is liquidity?

Accepted Answer

How easily a financial asset can be converted into cash

(the most liquid forms of money are cash and demand deposits)

Question 3

What is rate of return?

Accepted Answer

The percentage change in the value of an investment over a given period of time

Question 4

What is risk?

Accepted Answer

The chance an investment's actual gains will be different from the expected outcome

Question 5

What is interest?

Accepted Answer

The price you pay to borrow money or the price you charge to lend money

(typically expressed as a percent)

Question 6

What is a bond?

Accepted Answer

An interest-bearing asset issued by a business or the government promising to repay borrowed money in the future

Question 7

What are securities?

Accepted Answer

Certificates or other financial assets that have monetary value and can be traded

(e.g., stocks)

Question 8

What are stocks?

Accepted Answer

Securities that represent partial ownership in some public company

Question 9

What is the difference between stocks and bonds?

Accepted Answer

Stocks: a security that represents ownership in a public corporation

Bonds: a loan from you to a corporation or government

Question 10

What are loans?

Accepted Answer

An amount of money borrowed by an individual or organization that must be repaid with interest

Question 11

What are bank deposits?

Accepted Answer

Money placed in a bank account by a customer

Question 12

What is a demand deposit account?

Accepted Answer

A bank account you can withdraw funds from at any time, without prior notice

Question 13

What does it mean that there is an inverse relationship between interest rates and the price of previously issued bonds?

Accepted Answer

When the cost of borrowing money (interest rates) rises, bond prices fall

Question 14

What is the opportunity cost of holding money?

Accepted Answer

The interest that could have been earned from holding other financial assets, such as bonds

4.1 Financial Assets, AP Macroeconomics Flashcards