9d • General discussion
Important Definitions all traders should know
Some important definitions that all traders and investors should know:
Inflation: The increasing price of goods and services over time measured by the Consumer Price Index (CPI).
Yield Curve: A chart that graphs the relationship between interest rates and time until maturity. A normal yield curve shows that the longer term bonds have higher rates to compensate investors for the greater risk of inflation.
Fiscal Policy: Concerned with the use of government spending of tax revenue to influence the economy and interest rates
Monetary Policy: Concerned with the amount of money in circulation, which is set up the Fed to help control inflation, interest rates, and overall economic growth.
The Fed: The central bank of the US which is responsible for determining the amount of money in circulation in order to influence economic growth, inflation, unemployment, and exchange rates.
Federal Funds rate: This is the rate that is set by the Fed. It is the rate that banks charge one another for overnight loans and is considered the most volatile interest rate in the market.
Discount rate: The rate that the Fed charges banks for short term loans.
Open market transactions: The buying and selling of government securities with primary dealers. This is a tool the Fed uses for easing or tightening.
Reserve requirement: A tool of the Fed that requires banks to keep a certain percentage of customer deposits on hand and not lent out to customers.
Ease money supply: When the Fed increases the money supply and lowers interest rates.
Tighten money supply: When the Fed decreases the money supply and increases interest rates.
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Important Definitions all traders should know
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