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Principles of Finance 2e

Key Terms

Principles of Finance 2eKey Terms

Key Terms

business cycle
a period of economic expansion followed by economic contraction
ceteris paribus
holding all other things constant
consumer price index (CPI)
a measure of inflation based on the cost of a market basket of goods that a typical urban family of four might purchase
core inflation index
a measure of inflation that removes food and energy prices from the CPI
demand
the quantity of a good or service that consumers are willing and able to purchase during a given time period, ceteris paribus
economic exposure
the risk that a change in exchange rates will impact a business’s sales and number of customers
equilibrium
the point at which the demand and supply curves for a good or service intersect
equilibrium price
the price at which quantity demanded equals quantity supplied
expansion
the part of the business cycle in which GDP is growing
GDP deflator
a measure of inflation tracked by the Bureau of Economic Analysis, intended to measure what GDP would be if prices did not change from one year to the next
gross domestic product (GDP)
the market value of all goods and services produced within an economy during a year
inflation
a general increase in prices
law of demand
the principle that the quantity of purchases varies inversely with price; the higher the price, the lower the quantity
macroeconomics
the study of the economy as a whole, focusing on unemployment, inflation, and total output
microeconomics
the study of the economy at the individual level, focusing on how individuals and businesses choose to allocate scarce resources
nominal interest rate
the quoted or stated interest rate
producer price index (PPI)
a measure of the prices that producers of goods and services pay for their supplies and raw materials
real interest rate
the nominal interest rate minus the rate of inflation
recession
the part of the business cycle characterized by contraction
spot exchange rate
the price to immediately buy one currency in terms of another currency
supply
the quantity of a good or service that firms are willing to sell in the market during a given time period, ceteris paribus
transaction exposure
the risk that the value of a business’s expected receipts or expenses will change as a result of a change in currency exchange rates
translation exposure
the risk that a change in exchange rates will impact the financial statements of a company
unemployed
members of the labor force who are not currently working but are actively seeking a job
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