Microsoft Word - Money, Banking, and Int Finance(scribd).docx

Kenneth R. Szulczyk

accumulate loans exceeding a $100,000. Unfortunately, a stagnant economy would force

the U.S. government to pay billions in loan guarantees.

 Fannie Mae and Freddie Mac hold roughly $6 trillion in mortgages, comprising half the

mortgages in the United States. The U.S. government had seized these two institutions in

2008, and it has spent billions of dollars to bail them out. Bailout cost will continue to soar

if the U.S. economy does not recover. Unfortunately, the U.S. government helped create

this mess because it encouraged Fannie Mae and Freddie Mac to grant mortgages to low-

income households, who become vulnerable to downturns in the economy.

Key Terms

investment bank
underwriting
syndicates
insider information
organized exchange
exchange
specialist
National Association of Securities Dealers’
Automated Quotation
NASDAQ
Dow Jones Industrial Averages
stock market crash
bubble
credit crunch
investment institution
mutual fund
closed-end mutual fund
open-ended mutual fund
no-load fund
load fund
money-market mutual fund
money market deposit account
finance company

contractual saving institution

insurance company

premium

law of large numbers

adverse selection

moral hazard

risk-based premium

deductible

life insurance company

mutual company

stock company

term life policies

annuity

pension fund

vested

defined-contribution plan

defined-benefit plan

depository institution

commercial bank

savings institution

credit union

government financial institution

Chapter Questions

1. Which institutions are defined as securities market institutions?


2. Please explain the purpose of the Dow Jones Industrial Average and its usefulness.