Speculation refers to a type of investment strategy. When an investor engages in speculation, she buys a financial asset in order to sell it quick and make a profit. A speculator takes a risk on an asset, buying it when the price is low, and hoping the price will rise in order to make her quick or considerable profit. Speculation increases the fluidity of a market, with assets changing hands quickly to the buyers who need the assets at a particular time. Speculators also give longer term investors an option to sell their investment quick when the investment comes into vogue.
When a borrower cannot pay off a loan on the terms agreed with the lender, he is said to be in default. An example of default is failing to make the loan payments in full as scheduled. Loan institutions factor in the cost of a certain percentage of defaulted loans into their interest rates for every loan. The extra interest money covers the cost of some borrowers defaulting on their loans.
A monopoly occurs when a single company produces a service or an item where no other firms are in competition with similar goods or services. The company's unique product, for example, an invisibility cloak, will take up the entire market niche. Customers can put no pressure on the price of the item by choosing a cheaper product to do the same job, so the company producing the cloaks can pick its own price. Governments can act to prevent monopolies from setting unreasonable prices by price regulation or by encouraging competition.
Capital markets refer to the trading of shares and bonds, also known as securities. Capital market trades exist between the issuer of the security, such as a government or a company, and a buyer. The issuer of the security sells it to gain funds. When an investor buys shares, he is buying a part of a company. When he buys bonds, he buys a promise from the issuer that he will receive interest on the value of the bond. Most securities trading is between people who have invested in securities and those who want to invest in securities.
Intangible assets are things of economic value, but which do not physically exist. Examples of intangible assets include an idea under patent or an exceptional company reputation. These differ from tangible assets, such as buildings, money or equipment.
As an economy grows, so does company profit, income and spending. Tax accounts for a share of all of these and so tax revenues rise when economies boom, without the government doing anything extra to raise taxes. This tendency for tax revenues to rise in times of plenty is called fiscal drag.