Economics and Personal Finance Glossary (C-D)


C

Capacity- A borrower’s ability to repay debt.

Capital (financial)- The funds invested in a bank that are available to absorb loan losses or other problems and therefore protect depositors. Capital includes all equity and some types of debt. Bank regulators have developed two definitions of capital for supervisory purposes: Tier 1 capital can absorb losses while a bank continues operating. Tier 2 capital may be of limited life and may carry an interest obligation or other characteristics of a debt obligation; therefore it provides less protection to depositors than tier 1 capital.

Capital account- That part of a country’s balance of payments that records movements of capital into and out of a country.

Capital gains- A profit from the sale of financial investments.

Capital goods- See Capital resources.

Capital investment- The purchase of physical capital goods (e.g., buildings, tools and equipment) that are used to produce goods and services.

Capital ratio (banking system)- Total assets minus total liabilities as a percentage of total assets.

Capital resources- Goods that have been produced and are used to produce other goods and services. They are used over and over again in the production process. Also called capital goods and physical capital.

Card reader- A device designed to read or decode the encoding on plastic cards.

Card-not-present (CNP) transaction- A card transaction in which the card itself is not physically present. The cardholder provides information including the card number, expiration date, name of cardholder, and security code to a merchant.

Card-present (CP) transaction- A face-to-face card transaction in which the card is physically swiped or inserted into a card reader terminal.

Cash flow- Income (dollars coming in, usually from working) minus expenses (dollars going out, usually to buy goods and services).

Central bank- An institution that oversees and regulates the banking system and quantity of money in the economy.

Certificate of deposit (CD)- A savings alternative in which money is left on deposit for a stated period of time to earn a specific interest rate.

Chapter 11 bankruptcy protection- The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. Business owners and individuals can also seek relief in Chapter 11.

Character- A borrower’s reputation for paying bills and debts based on past behavior.

Characteristics of money- Important features money should have. Money should be portable, durable, divisible, generally acceptable, and relatively scarce.

Check- A printed form directing a bank to withdraw money from an account and pay it to another account.

Checkable deposits- Deposits in accounts against which checks can be written.

Check-cashing services- Businesses that provide services such as cashing all types of checks, including payroll, insurance, tax refund, settlement, and government and Social Security payments. These businesses may also provide other services, such as payday loans, money orders, and money wires.

Checking account- An account held at a bank or credit union in which account owners deposit funds. Account owners have the privilege of writing checks on their accounts and are able to use ATM cards and debit cards to access funds.

Choice- A decision made between two or more possibilities or alternatives.

Choropleth map- A map that uses shading, color, or symbols to convey a quantity or property for an area.

Clearing banks- Financial institutions that clear trades in government securities, agency securities, and other money market instruments for non-bank dealers.

Clearinghouse- An institution where mutual claims and accounts are settled, as between banks.

Closed economy- An economy that does not interact with other economies.

Coin- Money, usually minted from some combination of metals.

Coincidence of wants- Each participant in an exchange is willing to trade what he or she has in exchange for what the other participant is willing to trade.

Collateral- Property required by a lender and offered by a borrower as a guarantee of payment on a loan. Also, a borrower’s savings, investments, or the value of the asset purchased that can be seized if the borrower fails to repay a debt.

Collateral (elementary)- Something of value that a bank is able to keep if a borrower fails to repay a loan.

Collateralized obligations (CDO)- Collateralized debt obligation: A security that represents a claim on cash flows generated by a pool of debt obligations. Collateralized loan obligation (CLO): A security that represents a claim on cash flows generated by a pool of loans. Collateralized mortgage obligation (CMO): A security that represents a claim on cash flows generated by a pool of mortgages.

Collections (government)- Government income from taxes imposed on businesses and individuals and fees assessed on activities and services provided by the government.

Commercial Bank- Businesses that accept deposits and make loans.

Commercial mortgage-backed security (CMBS)- A security that relies for payment on cash flows generated by a pool of commercial mortgage debt obligations. (See also: Asset-backed security and Residential mortgage-backed security)

Commercial paper- A short-term, unsecured promissory note issued by an industrial or commercial firm, a financial company, or a foreign government. Typically, maturity is 90 to 180 days.

Commercial Paper Funding Facility (CPFF)- A Federal Reserve lending facility designed to provide a liquidity backstop to U.S. issuers of commercial paper. The CPFF is intended to improve liquidity in short-term funding markets and thereby contribute to greater availability of credit for businesses and households. The CPFF was discontinued February 1, 2010.

Comparative advantage- The ability to produce at a lower opportunity cost than another producer.

Complement (resources)- Productive inputs that are used jointly with other inputs in the production process.

Compound interest- Interest computed on the sum of the original principal and accrued interest.

Congress- The legislative body of the U.S. government, consisting of the Senate and the House of Representatives.

Conservatorship- A conservatorship is the legal process (for entities that are not eligible for Bankruptcy Court reorganization) in which a person or entity is appointed to establish control and oversight of a company to put it in a sound and solvent condition. In a conservatorship, the powers of the company’s directors, officers, and shareholders are transferred to the designated conservator.

Consumer confidence- A measure of how consumers feel about the economy, considered an indicator of consumers’ spending and saving decisions.

Consumer goods- Goods and services that are used for current consumption.

Consumer price index (CPI)- A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Consumers- People who buy goods and services to satisfy their wants.

Contract- An exchange, promise, or agreement between two parties that is enforceable by law. For example, a car buyer agrees to pay the amount financed at an agreed-upon interest rate for the length of the contract.

Contraction- A period when real GDP declines; a period of economic decline.

Contractionary monetary policy- Actions taken by the Federal Reserve to decrease the growth of the money supply and the amount of credit available.

Co-payment (co-pay)- A set dollar amount the customer pays, with the insurance company paying the difference.

Core Consumer Price Index- The consumer price index (CPI) excluding food and energy.

Core inflation- See Core Consumer Price Index.

Corporation- A company owned by shareholders.

Cost of living- The amount of income needed to achieve a given living standard.

Costs- Things unfavorable to a decisionmaker.

Coverage- How much risk or liability is protected with an insurance policy.

Credit- The granting of money or something else of value in exchange for a promise of future repayment.

Credit card- Cards that represent an agreement between a lender—the institution issuing the card—and the cardholder. Credit cards may be used repeatedly to buy products or services or to borrow money on credit. Credit cards are issued by banks, savings and loan associations, retail stores, and other businesses.

Credit default swap (CDS)- A type of derivative that allows a buyer to hedge against default of a counterparty. A CDS buyer agrees to pay a counterparty (the seller) a periodic premium in return for insurance against a “credit event” such as a default on a specified, underlying obligation.

Credit history- A person’s payment activity over a period of time.

Credit rating agencies- Firms that rate the quality of bonds and other financial securities. These ratings are used by investors to assess the probability of default. Well-known rating agencies include Moody’s, Standard & Poor’s, and Fitch Ratings. Firms in this business must meet standards enforced by the Securities and Exchange Commission.

Credit report- A loan and bill payment history kept by a credit bureau and used by financial institutions and other potential creditors to determine the likelihood that a future debt will be repaid.

Credit reporting bureau- An organization that compiles credit information on individuals and businesses and makes it available to businesses for a fee.

Credit responsibilities- Refers to the actions or behaviors in which people should engage when they use credit.

Credit rights- Refers to the protections put in place by law to help people obtain and maintain credit.

Credit score- A number based on information in a credit report, which indicates a person’s credit risk.

Credit union- A nonprofit financial institution that is owned by its members.

Creditor- A person, financial institution, or other business that lends money.

Credits- Additions or deposits to an account. In a bank account register, credits are added to the balance.

Criteria- A set of standards to consider when choosing among alternatives.

Criteria (elementary)- Things that are really important to think about when making a decision.

Crowding out- A condition where government enters the loanable funds market and thereby increases the interest rate beyond what is feasible for private sector borrowing.

Currency- Money, usually made from some type of paper-like material.

Current account- The section of a nation’s balance of payments that records its exports and imports of goods and services, its net investment income, and its net transfers.

Current population survey- A statistical survey carried out by the U.S. Bureau of Labor Statistics.

Cyclical unemployment- Unemployment associated with recessions in the business cycle.

 

D

Debit card- A plastic card similar to a credit card that allows money to be withdrawn or payments made directly from the holder’s bank account.

Debits- Charges to or withdrawals from an account. In a bank account register, debits are subtracted from the balance.

Debt- Money owed in exchange for loans or for goods or services purchased with credit.

Decision making- Deciding among choices (alternatives or options).

Decision making grid- A table used to evaluate alternatives based on criteria for the purpose of making a decision.

Deductible- An amount you must pay for expenses before the insurance company pays. The deductible amount is specified by the terms of the insurance policy.

Default- Default is the failure to promptly pay interest or principal when due.

Deferral- Postponed until a later time.

Deflation- A general, sustained downward movement of prices for goods and services in an economy.

Delinquency rate- In general, the delinquency rate refers to a percentage determined by dividing the number of loans that have delinquent payments by the number of total loans.

Delinquent- Failing to make timely payments under a loan or other credit agreement.

Demand- The quantity of a good or service that buyers are willing and able to buy at all possible prices during a certain time period.

Deposit insurance- Federal insurance of deposits received at an insured bank or thrift, including deposits in checking, negotiable orders of withdrawal (NOW), and savings accounts; money market deposit accounts; and time deposits such as certificates of deposit (CDs).

Depository institution- A financial institution such as a savings bank, commercial bank, savings and loan association, or credit union that is legally allowed to accept monetary deposits from consumers.

Depreciation- A decrease in value. Currency depreciation is a decrease in the value of one currency relative to another.

Depression- A severe and long-lasting economic downturn that is worse and deeper than a recession; a severe reduction in gross domestic product (GDP).

Determinants of demand- Factors that cause the demand curve to shift, such as changes in consumer income, consumer tastes and preferences, prices of related goods, number of buyers in the market, and consumer expectations.

Determinants of supply- Factors that cause the supply curve to shift, such as changes in input prices, taxes or subsidies, technology, producer expectations, and the number of sellers.

Diminishing returns- Each additional unit of a good adds less satisfaction than the one before it.

Direct deposit- An electronic transaction in which money is deposited directly into a payee’s bank account from a payer’s bank account.

Discount rate- The interest rate charged by the Federal Reserve to banks for loans obtained through the Fed’s discount window.

Discouraged worker- Someone who is not working and is not looking for work because of a belief that there are no jobs available to him or her.

Discretionary income- The portion of personal income available for spending after taxes and basic essentials have been deducted.

Discretionary spending- Government spending authorized by Congress on an annual basis.

Disinflation- A decrease in the inflation rate or a slowdown in the upward movement of prices for goods and services in the economy.

Disposable income- The amount of a person’s paycheck that is available to spend or save.

Dissaving- To consume more than income; essentially, the opposite of saving.

Diversification- Investment in various financial instruments in order to reduce risk.

Dividend- A share of a company’s net profits paid to stockholders.

Divisible- Easily divided into smaller amounts.

Division of labor

An approach to completing a complex task that breaks the project into a number of smaller, simpler tasks, which are assigned to individuals who generally perform only these duties.

Domestic- Inside a particular country.

Double coincidence of wants- Each participant in an exchange is willing to trade what he or she has in exchange for what the other participant is willing to trade.

Dow Jones Industrial Average (DJIA)- An index consisting of stock prices of 30 companies in various industries reflecting U.S. economic activity.

Down payment- A sum of money put toward the purchase price to reduce the amount of money borrowed.

Dual mandate- The Federal Reserve’s responsibility to use monetary policy to promote maximum employment and stable prices.

Durable- Something that is long lasting.