CH 11 Financail Markets Notes

Name____________________ Date_______________
Ch. 11- Financial Markets
Savings and Economic Growth
O Savings- the dollars that become available when people abstain from
consumption.
O Importance of Savings:
O Promotes economic growth
O One Persons savings represents another persons loan
O Makes investments possible
Financial System
O Network of savers, investors, and financial institutions_ that work together to

transfer _____savings_____________ to ______investors____________.
O Financial Assets represent a claim on income
O CDs
O Bonds
O Treasury Bills
O Mortgages
Four Parts of the Financial System
1. Savings- dollars that become available
2. Financial Intermediaries- banks, credit unions, life insurance companies,

pension funds, finance companies
3. Borrowers- Includes individuals or businesses
4. Financial Assets- documents that show borrowing has taken place
Financial Intermediaries
O Banks- offer checking and savings accounts, credit cards, and CDs.
Overdraft and late fees are major profit items.
O Credit Unions- non-profit service cooperative for members. Offers similar

services as banks.
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O Life Insurance Companies- collects premiums and uses surplus cash to lend.
O Pension Funds- collects contributions and invests in high quality stock and
bonds. Payments are made at retirement.
Basic Investment Considerations
O Consistency
O Invest over long periods of time
O Simplicity
O Stay with what you understand
O Risk-Return Relationship
O Low risk = ______low return____________
O High risk = _____high return_____________
Bond Components
O Bonds are _____long term_____________ contracts that require repayment plus

________interest__________ on money borrowed.
O Par Value- amount borrowed
O Maturity- life of the bond
O Coupon rate- interest rate paid on the par value
O Bond Rating- measures financial health of ______issuer____________.
Financial Assets
O Certificates of __deposits________________ (CDs)- loans to financial

institutions.
O Cost as little as $500
O Are FDIC insured
O Penalty if cashed out early
O ____Corporate ______ bonds- par value as low as $1000. Usually $10,000
O ____Municipal_____ Bonds- issued by state or local governments
O Tax-exempt- federal government does not ___tax_______________

interest earned.
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O Governments Savings Bonds
O Low denomination, non-transferable bonds issued by the US

government
O $50-$10,000
O Treasury Notes and Bonds
O Issued by the __US Treasury________________
O Come in ___denominations_______________ of $100
O Treasury notes- maturities of __2 to 10 years________________
O Treasury Bonds- maturities of __20 to 30 years________________
O Treasury Bills
O __short term________________ obligations
O ______maturities____________ of 4, 13, 26, or 52 weeks
O Do not pay ____interest______________ but are sold at

_____discounted_____________ rate
O Individual Retirement Account (IRA)
O ___long term_______________, tax-sheltered deposits
O Taxes are paid at ______retirement____________
O Lowers taxable ___income_______________
Investing in Equities and Options
O __Equities________________ or shares of common stock represent

____ownership______________.
O ___Stockbrokers_______________buy and sell __equities________________ for their

clients
O Individuals can bypass a ___stockbroker_______________ through discount

___brokerages_______________ and manage their own
___investments_______________.
How is Stock Performing?
O 52 weeks- shows the high and low prices for the past 12 months
O Stock (SYM)- Unique and easily remembered character string.
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O DIV- annual dividend paid in every quarter.
O YLD%- similar to interest return.
O PE- price to earnings ratio
O 100s- volume of shares traded in hundreds
O LAST- final or closing price
O NET CHG- compares recent closing price to previous closing price
Portfolio Diversification
O ____portfolio______________ ___diversification_______________ - holding a large

number of different stocks so that ____increases______________ in some stocks
can offset a _____decrease_____________ in others
O Mutual Funds
O sell stock in itself to individuals
O Invests money in stocks and bonds of other companies
O Pass on earnings to shareholders
O 401(k) Plan
O Tax-deferred ___investments_______________ and

____savings______________ plan
O Invests in ____mutual funds______________ and other investments
O Lowers taxable ____income______________
O Some ___employers_______________ may match contributions
Stock Exchanges
O New York Stock Exchange (NYSE)
O ____oldest______________ and most prestigious

___organized_______________ stock exchange.
O National Association of Securities Dealers Automated Quotation

(NASDAQ)
O First ____electronic______________ exchange
Measuring Stock Performance
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O Dow Jones Industrial Average (DJIA)
O Price-weighted average of 30 significant stocks
O Standard & Poors 500 (S&P 500)
O Measures overall market performance using price changes of 500

representative stocks

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Name____________________ Date_______________

Ch. 11- Financial Markets

Savings and Economic Growth

O Promotes economic growth

O One Persons savings represents another persons loan

O Makes investments possible

O Network of savers, investors, and financial institutions_ that work together to

O Financial Assets represent a claim on income

Four Parts of the Financial System

1. Savings- dollars that become available

2. Financial Intermediaries- banks, credit unions, life insurance companies,

3. Borrowers- Includes individuals or businesses

4. Financial Assets- documents that show borrowing has taken place

O Credit Unions- non-profit service cooperative for members. Offers similar

Basic Investment Considerations

O Invest over long periods of time

O Stay with what you understand

O Low risk = ______low return____________

O High risk = _____high return_____________

O Bonds are _____long term_____________ contracts that require repayment plus

O Par Value- amount borrowed

O Maturity- life of the bond

O Coupon rate- interest rate paid on the par value

O Bond Rating- measures financial health of ______issuer____________.

O Certificates of __deposits________________ (CDs)- loans to financial

O Cost as little as $500

O Are FDIC insured

O Penalty if cashed out early

O ____Corporate ______ bonds- par value as low as $1000. Usually $10,000

O ____Municipal_____ Bonds- issued by state or local governments

O Tax-exempt- federal government does not ___tax_______________

O Governments Savings Bonds

O Low denomination, non-transferable bonds issued by the US

O Treasury Notes and Bonds

O Issued by the __US Treasury________________

O Come in ___denominations_______________ of $100

O Treasury notes- maturities of __2 to 10 years________________

O Treasury Bonds- maturities of __20 to 30 years________________

O __short term________________ obligations

O ______maturities____________ of 4, 13, 26, or 52 weeks

O Do not pay ____interest______________ but are sold at

O Individual Retirement Account (IRA)

O ___long term_______________, tax-sheltered deposits

O Taxes are paid at ______retirement____________

O Lowers taxable ___income_______________

Investing in Equities and Options

O __Equities________________ or shares of common stock represent

O ___Stockbrokers_______________buy and sell __equities________________ for their

O Individuals can bypass a ___stockbroker_______________ through discount

How is Stock Performing?

O Stock (SYM)- Unique and easily remembered character string.

O DIV- annual dividend paid in every quarter.

O YLD%- similar to interest return.

O PE- price to earnings ratio

O 100s- volume of shares traded in hundreds

O LAST- final or closing price

O NET CHG- compares recent closing price to previous closing price

O ____portfolio______________ ___diversification_______________ - holding a large

O sell stock in itself to individuals

O Invests money in stocks and bonds of other companies

O Pass on earnings to shareholders

O Tax-deferred ___investments_______________ and

O Invests in ____mutual funds______________ and other investments

Name______ Date_

O Low risk = low return______

O High risk = _high return_________

O Bonds are _long term_________ contracts that require repayment plus

O Bond Rating- measures financial health of issuer______.

O Certificates of deposits______________ (CDs)- loans to financial

O Corporate __ bonds- par value as low as $1000. Usually $10,000

O Municipal_ Bonds- issued by state or local governments

O Tax-exempt- federal government does not _tax_____________

O Issued by the US Treasury______________

O Come in _denominations_____________ of $100

O Treasury notes- maturities of 2 to 10 years______________

O Treasury Bonds- maturities of 20 to 30 years______________

O short term______________ obligations

O maturities______ of 4, 13, 26, or 52 weeks

O Do not pay interest__________ but are sold at

O _long term_____________, tax-sheltered deposits

O Taxes are paid at retirement______

O Lowers taxable _income_____________

O Equities______________ or shares of common stock represent

O _Stockbrokers_buy and sell equities______ for their

O Individuals can bypass a _stockbroker_____________ through discount

O portfolio________ _diversification_______________ - holding a large

O Tax-deferred _investments_____________ and

O Invests in mutual funds__________ and other investments

O Lowers taxable income__________

O Some _employers_____________ may match contributions

O oldest__________ and most prestigious

O First electronic__________ exchange