1. Chapter 11
Financial Markets

2. Investment
Investment is the act of redirecting resources from being consumed today so that they may create benefits in the future.
It is the use of assets to earn income or profit

3. Investment
Investment promotes economic growth and contributes to a nations wealth.

4. The financial System
A financial system includes savers and borrowers and allows the transfer of money to take place.
Financial assets, or securities, are documents that represent claims on property or income of the borrower. If a borrower fails to pay back the loan – they serve as proof in court that repayment is expected.

5. Financial intermediaries
These are institutions that help channel funds from savers to borrowers:
Banks, credit unions
Finance companies
Mutual funds
Life insurance
Pension funds

6. Sharing Risk
About 60% of all new businesses fail – so you want to spread out your money…
Diversification – the strategy of spreading out investments to reduce risk
Portfolios, collections of financial assts

7. Risk AD+ Dis - CD Define Liquid? Munis Corp Rate of Return savings
Savings Bond
Munis
Corp
Junk
Bonds
Mutual Fund

8. Risk, Liquidity, Return
Return is the money an investor receives above and beyond the sum of money initially invested.
Savings accounts pay very low, but they are liquid…meaning you can get cash easily for immediate use.
CD’s you give up liquidity for a period of time, but they have a higher interest rate. They are attractive to small investors, and you can choose term of maturity. (college, retirement, etc)
** the higher the point return – the higher the risk**

9. 11.2 Bonds & Financial Assets
Bonds are IOU’s, loans that represent debt that the government or corporation must repay to an investor.
They are low risk, and the rate of return in higher.

10. IN SEPARATE Groups
Read about types of bonds & fill out your chart – place your findings on the board
Savings
Treasury
Municipal
Corporate
Junk

11. 11.3 The Stock Market
Stock is issued in portions known as shares. Stocks are also called equities or claims of ownership.
Advantages:
Dividends: paid quarterly based on profit.
Capital Gains: the difference between the higher selling price and the lower purchase price…capital loss – when seller loses

12. Types of Stock
Income stock
Growth stock
Common stock
Preferred stock

13. Stock Split

14. Risks
Stocks are risky. If a company goes bankrupt it pays its bills first – and its stockholders last…higher risk = higher return

15. How Traded
Stockbrokers work for brokerage firms and buy and sell stock on the stock exchange.
The NYSE started in 1792!! As an informal, outdoor exchange.
Those on the NYSE are called blue chip companies. They are in high demand.

16. Nasdaq
The National Association of Securities Dealers Automated Quotations…whew
This is the American market for over-the=-c0o0unter securities. Developed in 1971 it is the 2nd largest securities market in the US…3rd in the world. There is no trading floor it is all electronic.

17. Futures, Options, Daytrading
Futures are contracts to buy or sell commodities at a specific date in the future at a price today…most are with grain and livestock – gas & oil too
Options are contracts giving the choice to buy or sell at a certain price up to a certain time in the future (like buying on margin)
Daytrading – minute by minute making dozens of trades…very high risk

18. Bull & Bear Market
When the stock market rises – it is a bull market…when it falls for a period of time it is called a bear market.
In a bull market – profits increase
In a bear market – investors sell stock

19. Dow Jones
Stocks on the Dow represent 30 large companies in various industries such as food, entertainment and technology.

20. The S&P 500
Tracks the price changes of 500 different stocks as a measure of stock market performance.