1. Financial Markets How and Why Business Firms Need and Spend Money
Bonds and Other Financial Assets
The Stock Market

2. Financing Corporations

3. Wall Street – Washington’s Inaugural Address

4. Wall Street

5. Wall Street

6. Vocab Bankrupt Inventory Long-term financing Short-term financing
Yield
Revenue
Savings bond
Treasury bonds
Corporate bonds
Junk bonds

7. Why Do Businesses Need Money?
Everyday expenses
Payroll, rent, utilities
Replace and expand their inventory (goods they sell and the materials used in their manufacture)
Expand and grow
Meet interest payments on their debt

8. Corporations Revenues
Revenue – a corporations income from goods or services that firm sells
When a corporation’s revenues cannot meet a firm’s needs it will:
Go bankrupt
Dip into savings
Borrow money
Sell more of its stock

9. Short Term vs. Long Term Financing
Short-term financing – a loan paid off in less than a year
Long term financing – loans of more than a year

10. Bonds
Bonds are basically loans, or IOU’s, that represent debt that the government or a corporation must repay to an investor
Yield – annual rate of return on a bond

11. Bond Ratings
Rating agencies grade bonds on a letter scale that indicates credit worthiness and risk.
In simplest terms, the lower the letter scale, the lower the quality and the higher risk potential.
AAA or triple A rating — indicates the highest-quality bonds that offer the highest protection for principal and interest payments
A or single A rating — indicates good to medium-grade bonds;
BBB or triple B rating — indicates medium-grade quality bonds, with adequate protection;
Below triple B is considered speculative, high-risk securities and the category is referred to as junk bonds.

12. Types of Bonds Savings Treasury Bonds, Bills, Notes Municipal Bonds
Corporate Bonds
Junk Bonds

13. Savings Bond Given to young people as a gift
Low denominations ($50 to $10,000)
Issued by the U.S. Government
Helps pay for public works

14. Treasury Bonds, Bills, and Notes
T-bills and T-notes
Issued by the Treasury Department of the U.S. Government
Safe, long-term investments

15. Municipal Bonds Locally sold To pay for local improvements
Pretty safe investments

16. Corporate Bonds Issued by companies to expand their business
Fairly large denominations ($1000, $5000, $10,000)
Moderate level of risk to be repaid

17. Junk Bonds High-yield securities
Very risky but could also be a big return
12% vs. 8%

18. Investing Basics: Bonds

19. Certificates of Deposit (CDs)
Available through banks
Attractive to small investors (start with $100)
A small amount of time 6 months to a year

20. Buying and Selling Stocks and Bonds

21. Vocab Investment bank Stock exchange Stock market Common stocks
Preferred stocks
New York Stock Exchange
NASDAQ
Stockbroker
Brokerage Firm
Securities
Dividends
Buying on Margin
Insider Trading

22. How Stocks and Bonds Are Sold to the Public
A corporation goes to an investment bank to sell their stock
The investment bank buys the entire issue of stock then sells them at a price to make a profit

23. Stocks: Common and Preferred
Most stocks are common stocks
Preferred Stock – holders of preferred stock have no voting rights. Only receive dividend bonus

24. Investing Basics: Stocks

25. Stock Exchanges Largest corporations are sold at a stock exchange.
New York Stock Exchange is the largest
Stocks are bought and sold on an auction system
Bought through a stockbroker representing buyer or seller
Over-the-counter market deals with banks, insurance companies, and mutual funds.
NASDAQ – National Association of Securities Dealers Automated Quotations

26. Brokerage Firms
Brokerage Firms – a company that sells stocks to people
Stockbrokers – Sales specialist
Securities – stocks and bonds
Ameritrade
Charles Schwab

27. Why People Buy Stocks 20% of American families own stocks
Dividends – a part of company’s profits
Capital Growth – Stocks increase over time
Investors/Speculators – people who buy and sell stocks for the above listed reasons
Bull market – a rising market
Bear market – a declining market
Buying on Margin – buying stocks for a percentage of the fee. Because of the Great Depression, the Federal Reserve Board sets the margin. 40% to 100% over the years.

28. Investing Basics: Mutual Funds

29. Securities and Exchange Commission
SEC created by an act of Congress in 1934
Protect the public against deception or fraud in the selling of stocks
Caveat Emptor – “let the buyer beware”
Companies have to register with the SEC to sell stocks
Insider Trading – buying or selling of stocks in which the person has info not available to the public

30. Specialized Markets
Markets exist for buying and selling commodities – just like stocks
Wheat
Barley
Rye
Coffee
Tin
Silver
Not as popular with the public – take a lot more knowledge

31. Financial Markets Bookwork
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