1. The Best of Chapter 12

2. Financial Assets and the Financial System For people to use the savings of others, the economy must have a Financial System – a network of savers, investors, and financial institutions that work together

3. Financial Assets – claims on property and income of the borrower People can save in many ways: 1. open a savings account 2. purchase a certificate of deposit – a receipt showing that an investor has made an interest-bearing loan to a bank, a government, or corporate bond

4. The Circular Flow of Funds The circular flow that takes place when funds are transferred from savers to borrowers. Look at Figure 12.1 on page 315

5. Nonbank Financial Intermediaries Non-depository institutions that channel savings to borrowers Examples: Insurance companies, pension fund, real estate investment trust

6. Investing Equities (stocks) – represents as partial ownership of a corporation Equity markets are efficient – most investors diversity their portfolio to protect against a stock market crash

7. Stock Markets New York Stock Exchange (NYSE) – the oldest & largest Located in NYC American Stock Exchange (AMEX) – Located in NYC

8. Bull & Bear Market Bull Market: when the market/economy is strong Bear Market: when the market/economy is weak