2.  Saving : The absence of spending.  Savings : Dollars that become available in the absence of spending.  For investment to take place, someone in the economy must save.

3.  Financial System : A way to transfer saved dollars to investors.  Financial Assets : Receipts that certify certain properties have value. Can be a CD or deposit slip.  Financial Intermediaries : Institutions that channel savings from savers to borrowers. Includes all types of banks.  Borrowers also make up the financial system as they are the recipients, creators, and users of financial capital.  Investments.

4. Finance Companies : Makes loans directly to consumers and specializes in installment contracts. Bill Consolidation Loans : Consolidating loans under one monthly payment. Life Insurance Companies Mutual Funds: Companies that sell stock in themselves and then invests money in other companies. Pension Funds: Set up to collect income and disburse retirement payments. Money collected is invested in stocks and bonds and then paid to people who retire. Real Estate Investment Trusts: Borrow money from banks to build buildings, and make their earnings off of the rent and/or sales of those buildings.

5.  1. Why is it important for people to save money?  2. What sort of ways can you save money without going through the banks?

6.  When investing, consider the following:  The relationship between risk and return.  Risk : Situation in which the outcome is not certain.  Financial assets can go up and down in price.  Usually, riskier assets offer higher returns (if there ARE any returns)

7.  What is the reason to invest?  Wealth for retirement?  Steady stream of income?  Get rich quick?  What is the source of income?  Payroll deduction (401k/mutual fund/pension)  If an investor receives periodic payments such as bonuses or royalties (bonds) Everyone has their own reason for investing and their own unique way to pay for it.

8.  Consistency : Successful investors invest consistently over long periods of time and avoid “trendy”.  Avoiding Complexity: Investors advise others to “stick with what they know”.

9.  3. Why is there always a risk when it comes to investing money?  4. What is the goal of investing?  5. Would you consider yourself to be a safe investor or a risky investor?

10.  Bond : long-term obligations that pay a certain interest rate for a specified number of years.  Coupon : interest on the debt  Maturity : how long the bond is  Par Value : the principal (original amount)  Current Yield : Annual interest divided by purchase price  Bond Ratings : Rated by two companies, from AAA (best) all the way to D (worst). Lower rated bonds usually cost less and get higher interest.  Bonds usually don’t make a great amount of money, but never lose money either.

11.  Certificates of Deposit : Short term loans made to banks. Low cost with different maturity rates.  Corporate Bonds : Taken out by companies. Some are Junk Bonds.  Municipal Bonds : Taken out by towns or counties, usually to pay for a major construction project.  Government Savings Bonds : No yearly interest payments, they are all rolled in at the maturity date.

12. Capital Market : Where money is loaned for periods of time more than one year. Money Market : Where money is loaned for periods of time less than one year. Primary Market : Where the original issuer can only redeem the financial asset. (savings bonds and IRA’s) Secondary Market : Where existing securities can be re-sold.

13. EEfficient Market Hypothesis : States that most stocks are priced correctly, and deals are hard to find. PPortfolio Diversification : Holding a number of different types of stocks.

14.  6. What are bonds?  7. What are the different type of bonds that are out there?  8. Why is it good to have a diversified portfolio?

15.  New York Stock Exchange : Oldest and largest. 2000 companies listed.  American Stock Exchange : 1,000 listed stocks.  Regional and Global Stock Exchanges  NASDAQ: Up and coming exchange, many tech stocks.  Over the counter market : not listed on any exchange.  Nikkei: Stock market based in Tokyo Japan. Usually is an indicator of how stocks in NY will perform.

16.  Bull Market: A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases (capital gains).capital gains  A bullish trend in the stock market often begins before the general economy shows clear signs of recovery.  A bear market is a general decline in the stock market over a period of time. It is a transition from high investor optimism to widespread investor fear and pessimism.  A generally accepted measure is a price decline of 20% or more over at least a two-month period.

17.  Dow Jones Industrial Average : measure of 30 large trading companies on the NYSE  Standard and Poor 500: The day to day price change of 500 stocks in several exchanges.

18.  Buy low, sell high.  Speculation: buying high risk stocks to sell them later.  Margin: buy a stock at only a fraction of the price with banks or stockbrokers lending rest—up to 75%. When you sell, you divide the profits up evenly. If they fell, you owed the lender.

19.  As the summer of 1929, the stock prices kept rising. By Sept., they leveled out. Some felt that tough times were ahead and began to sell their stocks.  On October 24, 1929, the stock market had a small crash as more investors began to pull out.  On Black Tuesday, the stock market plunged.  16 million shares were “dumped”

20. NOT  The Depression did NOT happen just because of the stock market crash alone. It was the catalyst.  Banks lost money in market. Banks either forced people to payback loans, or the banks went bankrupt.  People lost life savings.  Creditors needed money badly. People were living beyond their means.  Inequality in economic classes.

21.  Spot Market : When a transaction is made at the prevailing price.  Futures : Buying or selling something for a certain price in the future, at a price specified today. You can’t back out of the deal.  Options : Buying or selling something for a certain price in the future, at a price specified today. You CAN back out of the deal.

22.  9. What is a bull market?  10. What is a bear market?  11. What was behind the stock market crash of 1929?  12. What is the future of investing?