Financial Markets Saving & Capital Formation – Saving – absence of spending Savings – Money available when consumption is not taking place Both terms allow the economy to grow because productive resources become available In order to invest, someone (including oneself) must save and make funds available  Save on your own  Borrow from others*

Financial Assets and the Financial System Financial System – network of savers, investors, and financial institutions that move funds and make savings available Financial Asset – receipts that provide information about an interest-bearing loan. This information includes the amount and the terms of the loan  Certificate of Deposit – Bank loan, Government, Corporate Bond

Financial Assets and the Financial System Financial Intermediaries – institutions that lend savers money to borrowers  Banks  Life Insurance Companies  Pension Funds Intermediaries allow people a place to store their savings and borrow financial capital

Financial Assets and the Financial System Nonbank Financial Intermediaries – Nondepository Institutions Finance Companies –  make loans, buy installment contracts, and offer bill consolidation loans  charge more than a regular bank Life Insurance Companies –  collect premiums and lend funds to others

Financial Assets and the Financial System Mutual Funds –  Sell stock in itself then uses that money to invest in other stocks and bonds  Investors receive dividends  NAV – Net Asset Value Pension Funds –  Financial institution that collects money to provide income security at a later date or in the case of injury REIT – Real Estate Investment Trust  Loans to construction companies