Lead off 3/25 What are all the ways that a person could save money? What effects do you think people saving money have on the economy as a whole

Saving and Investing Chapter 12

I. Saving and Capital Formation A.Definitions 1.Saving – the absence of spending 2._____________ – money available for investments (grow through business startup or expansion) B.Necessary for Economic Growth 1.A person must save income to __________________ OR 2.A person must _______________ someone else’s savings to start a business

II. Financial Intermediaries and Assets _____________________– network of savers, investors, and financial institutions that bring them together A.Financial Intermediaries – institutions that bring savers and investors together (pg ) 1.Banks 2.________________- lends money to consumers (ex: store credit cards) 3.Life Insurance company - invests money from premiums 4._________________- company that invests in several corporations and then sells stock in itself 5.Pension Fund - money withheld from employees in invested

B.Financial Assets – claims that saver has on the borrower (receipts representing the debt) 1._____________ – long term financial obligations issued by governments (tax free and very safe) 2.401k - employer matched retirement fund Tax free until redeemed Deposits are invested in bonds, stocks, etc. 3.CD - loan made to a financial institution with a specific maturity date (like a savings account with a timer) 4.T-Note, T-Bond, T-Bill - federal government instruments issued by the _______________ 5.___________________________ - personal long term savings account that is tax free upon deposit (regular) or withdrawal (Roth)

III. Banks A.Types 1.______________– corporation owned by shareholders 2.______________ – bank that invests holdings in home mortgages. Lack of regulation caused a crisis in the 1980’s. 3.______________– cooperative that provides financial services like a bank B.Regulation 1.Federal Reserve – issues currency, controls interest rates, clears checks, makes rules for banks 2._________ – government guarantees deposits in case of bank failure C.Functions 1.Hold accounts and lend money 2.Expansion of the money supply Reserve requirement – percentage of deposits a bank must keep on hand Money supply expands according to the following formula: Reserves/Reserve requirement = money supply (ex: $1000 with 20% reserve requirement would create $5000)

IV. Financial Markets A.________________– financial assets with maturities over one year (savings bond) B.Money market – financial assets with maturities less than one year (mutual fund) C._________________– financial assets that are non-transferable (IRA) D.Secondary market – financial assets that can be sold (T-bond)

V. Stock Market Equities – shares of stock in corporation A.Purchasing equities 1.Buy low, sell high = ______________________ 2.______________________ – buying stock in different types of corporations so that increases in some can offset decreases in others 3.How? Stock broker – person who buys and sells stocks for clients at a stock exchange _____________ – shares can be bought or sold through an online broker

V. Stock Market B.Stock Exchanges – physical locations where members corporations buy and sell shares to brokerage firms who pay for the right to trade 1.New York Stock Exchange (NYSE) – ____________________________________ 2.American Stock Exchange (AMEX) – smaller and more speculative than NYSE 3.Regional exchanges – stocks of smaller corporations and regional corporations are bought and sold (Chicago, Boston, Memphis, etc) 4.________________________– computer based exchange dealing with corporations who are not members of an organized market (NASDAQ)

VI. The Futures Market Futures contract – _____________________________________ _____________________________________ _____________________________________ Futures market – market where futures contracts are bought and sold Usually in commodities like_______________ Futures trading can influence the actual price

VII. Investment Considerations A.Risk/Return – _________________________________________ B.Objectives – make money (high risk) or save (low risk) C.Consistency – save regularly over a long period of time D.Market efficiency – idea that stocks are usually priced about right (not likely to buy an underpriced stock and have it skyrocket) E.Measuring stock performance – important measure of the economy as a whole 1._____________________________– measures the collective performance of 30 important stocks on the NYSE(percentage %) to capture the overall performance of the exchange 2.Standard and Poor’s 500 – measures the collective performance of 500 important stocks across NYSE, AMEX, and NASDAQ 3.Bull vs. Bear Markets _______ – market is strong, stock prices are rising _______ – market is weakening, stock prices are falling