 In Ancient Peru, when a women found an ‘ugly’ potato, it was the custom for her to push it into the face of the nearest man.  Americans will spend more on cat food this year than baby food.  Mosquitoes prefer children to adults, blondes to brunettes.  Christopher Columbus “discovered” America, but he thought he was in Asia. He was not the first to think the Earth was round and he killed all the natives.

 Assets: the money and other valuables belonging to an individual or a business  Securities: Assets that have financial value and can be traded  Default: No longer being able to pay back a loan  Intermediary: An entity that acts as the middleman between two parties in a financial transaction

 A financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets  Financial markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees, and market forces determining the prices of securities that trade.

 A financial institution is an organization that provides financial products and services to consumers to help them manage money  They provide services and advice to help consumers meet their financial goals  Financial institutions provide a wide range of services to customers

1) Storing money a) Financial institutions provide its customers with a safe and secure place where they can keep their money

2) Saving money › They offer people ways to save money for the future › This is done through:  Savings accounts and Checking accounts  Money market accounts  Certificates of Deposit

 A deposit account at a financial institution that allows for withdrawals and deposits › Money is very liquid › Unlimited withdrawals and deposits

 Accounts held by a financial institution that pays interest to the depositor  Customers set aside money › Money in account is not very liquid › Number of deposits and withdrawals may be limited

 An account where people are allowed to save and write a limited number of checks › Usually requires that you keep a higher balance in the account

 Accounts offer a guaranteed rate of interest but cannot be removed until after a specified period of time  If the money is withdrawn early there may be a penalty associated with it

3 ) Loans › Debt provided by one entity to another entity › People will get loans to buy cars, homes, go to college or many other reasons

 Financial institutions attract funds from savers by offering interest rates  Financial institutions then lend money to consumers and charge interest on those loans to earn income.  Financial institutions are able to pool the savings of many individuals in order to make loans to borrowers or invest in other financial products  Three types of loans are prevalent in the US: secured, unsecured, and subsidized

 The borrower will pledge some asset as collateral, meaning it can be taken back if the loan is not paid.  Example: Mortgages for houses › Someone borrows money to pay for the house, but if they can’t pay it back the bank can come repossess the house

 Loans are not secured against the borrowers assets and no collateral is provided  Examples: Credit Card Debt, personal loans, bank overdrafts

 Loan in which the interest is reduced by an explicit or hidden subsidy  Example: College loans in the US › No interest is accrued while a student remains enrolled in education

 Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.  Interest exists on loans and on certain types of accounts

 Interest is calculated based on your initial deposit amount only  Interest= Amount X Interest Rate X Time › Time is always in years, months is a decimal

 You deposit $500 into a savings account at 7% interest for 3 years and 3 months. How much interest do you earn?  $500 x 0.07 x 3.25 › =$ › After 3 years and 3 months you have $ in your savings account

 Interest calculated on the initial amount as well as the accumulated interest added in  “Interest on interest”  This will make a deposit amount grow faster

 Accept deposits and provide security and convenience to their customers

 They accept responsibility for financial transactions › Their name on the check makes it acceptable

 They allow you to not have to carry around large amounts of currency and use checks or credit/debit cards instead

 Underwriting debt and equity offerings, acting as an intermediary between an issuer of securities and the investing public, making markets, facilitating mergers and other corporate reorganizations, and acting as a broker for institutional clients.

 They facilitate mergers, act as intermediaries in securities and create markets

 They act as intermediaries between buyers and sellers to facilitate securities

 A full service brokerage provides investment advice, portfolio management, and trade execution  A discount brokerage allows investors to make their own decisions, but the broker may still execute the trades

 Savings and loans must have 65% or more of their lending in residential mortgages

 They offer higher rates on deposits and charge lower rates on loans

 Membership is not open to the public, but rather restricted to a particular membership group