2. Economics 2/7/11 http://mrmilewski.com OBJECTIVE: Demonstration of Chapter#11 and begin examination of the circular flow. I. Administrative Stuff -attendance & distribution of test II. Chapter#11 Test III. Journal #28 pt.A -Read the Business Week “Newsclip” p.306 -Answer questions (1-2) p.306 IV. Journal #28 pt.B -notes on savings & investing NOTICE: Journals 21-30 Due Wednesday!

3. Capital “The New York Stock Exchange generates the capital that makes capitalism work.” Capital – the equipment, tools, and machinery used in the production process. Financial Capital - savings Saving – absence of spending Savings – dollars that become available when people abstain from consumption

4. The Financial System It is a network of savers, investors, & financial institutions that work together to transfer savings to investors. This results in the circular flow, which is the way funds are transferred from savers to borrowers.

5. As a saver you are: Categorized as a household and can save the following ways: 1.) Open a savings account 2.) Buy a CD (certificate of deposit) which is a receipt showing that an investor has made an interest bearing loan to a bank 3.) Buy a bond from the government or corporation in which you receive a receipt for the funds you loaned them.

6. Receipts Are the claims on the property and the income of the borrower. They are assets because they are property that has value. It specifies how much was loaned, for how long, and the terms (interest rate) in which the loan was made.

7. Circular Flow

8. A circular flow takes place when funds are transferred from savers to borrowers i.e. Banks (Savings banks, credit unions, commercial banks, and savings associations) obtain funds when their customers or members make regular deposits.

9. Economics 2/8/11 http://mrmilewski.com OBJECTIVE: Examine investment strategies and financial assets. I. Journal #29 pt.A -Read Business Week “Newsclip” p.327 -Answer questions (1-2) p.327 II. Quiz#17 III. Return of Chapter#11 Test IV. Journal #29 pt.B -notes on types of investments NOTICE: Journals 21-30 Due Tomorrow!

10. Risk Risk – a situation in which the outcome is not certain, but probabilities for each outcome can be estimated. Low risk – low return on investment, high degree of safety High risk – possibility of high return, little degree of safety

11. p. 319

12. Bonds Bonds are long term obligations that pay a defined interest rate for a specific number of years The 3 components of a Bond: *coupon – the interest rate *maturity – the length of time *par value – the amount borrowed (MUST be repaid when the bond matures)

13. Example of a Bond You have $1000 to invest. The Milewski Corporation is offering a ten year bond at a 10% interest rate paid annually. If you decide to invest in the Milewski Corp. today, what is the coupon, maturity, and par value on the bond you purchase? Coupon 10% or.10 Maturity 2/8/2021 Par value $1000.00 Annual Interest Paid $100.00

14. Was it a good investment? To determine if you made a good investment you should: 1.) Determine the bond yield annual interest / purchase price = current yield $100.00 / $1000.00 =.10 2.) Check the Bond Rating 3.) Compare it to other similar bonds

15. Organized Stock Exchanges NYSE – oldest, largest, and most prestigious in the U.S. Located on Wall Street in NYC AMEX – smaller stocks, those who can’t quite make it to the NYSE are traded here. (the JV team) Also located in NYC Regional Stock Exchanges – originally listed small companies and new companies. Now, they trade local stocks and better meets the needs of smaller companies. Located in: Chicago, Pacific, Philadelphia, Boston, and Memphis

16. Over-the-Counter Market OTC – most stocks in the U.S. are not traded on organized exchanges. They are traded electronically using NASDAQ NASDAQ – National Association of Securities Dealers Automated Quotation FUN FACT: NASDAQ is 40 years old today. Few OTC stocks pay dividends. Most are small and new companies

17. Bull v. Bear Bull market – when stocks are strong and stock prices are rising Bear Market – when stock prices are falling

18. Measuring the Market Question: How do you know if stock market is a bull or a bear? Dow Jones Industrial Average (the Dow) – the average of 30 stocks traded on the NYSE S&P 500 – uses the movement of 500 stocks traded to determine an index number which shows the direction of the market

19. Economics 2/9/11 http://mrmilewski.com OBJECTIVE: Examine investment strategies and financial assets. I. Journal #30 pt.A -Read “The Global Economy” p.323 -Answer questions (1-2) p.323 II. Quiz#18 III. Journal #30 pt.B -notes on market investment strategies IV. Journals 21-30 Due

20. Futures Trading Spot – you pay the price something is worth today Futures contract – you buy at today’s price and you sell at a specific date in the future at today’s price, regardless of the market price at the time of sale. Example: You buy 1 oz of gold at today’s price: You also agree to sell that gold at today’s price to your friend six months from today. If gold six months from now is lower, you make money. If the price of gold is higher, you lose money.

21. Futures Market Where futures contracts are bought and sold. Most are associated with livestock and farm products. Futures markets are located in NYC, Chicago, & Kansas City.

22. Options Markets Call option – the right to buy the share of stock at a specific date and price in the future. Put option – the right to sell a share of stock at a specific date and price in the future.

23. Types of Markets Capital market – where money is loaned for more than one year. Money market – where money is loaned for less than one year. Primary market – a market where only the original issuer can repurchase or redeem a financial asset. Secondary market – is a market in which existing financial assets can be resold.

24. Nonbank financial institutions Another important group of financial intermediaries includes: nonbank financial institutions– nondepository institutions that channel savings to borrowers. Finance companies, life insurance companies, pension funds, and real estate investment trusts are examples of nonbank financial institutions.

25. Finance Companies finance company - a firm that specializes in making loans directly to consumers and in buying installment contracts from merchants who sell goods on credit. Some finance companies make loans directly to consumers. Because they make some risky loans, and because they pay more for the funds they borrow, finance companies charge more than commercial banks for loans.

26. Life Insurance Companies A financial institution that does not get its funds through deposits The head of a family, for example, purchases a life insurance policy to leave money for a spouse and children in case of his or her death.

27. Life Insurance Companies premium - the price the insured pays for this policy and is usually paid monthly, quarterly, or annually for the length of the protection. Because insurance companies collect cash on a regular basis, they often lend surplus funds to others.

28. Mutual Funds mutual fund - a company that sells stock in itself to individual investors and then invests the money it receives in stocks and bonds issued by other corporations. Mutual funds allow people to play the market without risking all they have in one or a few companies. net asset value (NAV)–the net value of the mutual fund divided by the number of shares issued by the mutual fund–is the market value of a mutual fund share.

29. Pension Funds pension - a regular payment intended to provide income security to someone who has worked a certain number of years, reached a certain age, or suffered a certain kind of injury. pension fund - a fund set up to collect income and disburse payments to those persons eligible for retirement, old-age, or disability benefits.

30. Pension Funds During the 30- to 40-year lag between the time the savings are deposited and the time the workers generally use them, the money is usually invested in corporate stocks and bonds.

31. Real Estate Investment Trusts real estate investment trust (REIT) – a company organized primarily to make loans to construction companies that build homes.

32. Economics 2/10/11 http://mrmilewski.com OBJECTIVE: Examine the NYSE. I. Administrative Stuff -Attendance & Return of Journals III. Film: Modern Marvels: NYSE -questions on film the New York Stock Exchange NOTICE:Progress Report Printed Tuesday!

33. Economics 2/11/11 http://mrmilewski.com OBJECTIVE: Examine the concepts related to Financial Markets. I. Chapter#12 Guided Readings Complete the following activities due today! -Chapter#12 section#1 Guided Reading -Chapter#12 section#2 Guided Reading -Chapter#12 section#3 Guided Reading -Chapter#12 Enrichment II. Chapter#12 Review -Review for Chapter#12 Test NOTICE: Chapter#12 Test Monday!