6 Certificate of Deposit -CD Promissory note issued by a bank Time deposit that restricts holders from withdrawing funds on demand which is how you earn more INTEREST on your moneyEarly withdrawal will often incur a penaltyPurchase a $10,000 CD with an interest of 5% compounded annually and a term of one year. At year's end, the CD will have grown to $10,500
7 Federal Deposit Insurance Corporation - FDIC Insures deposits in the U.S. against bank failureCreated in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practicesInsure deposits of up to US$250,000 per institution
8 Financial Intermediaries Financial intermediaries are institutions that help channel funds from savers to borrowers.Banks, Savings and Loan Associations, and Credit UnionsTake in deposits from savers and then lend some of these funds to various businessesFinance CompaniesMake loans to consumers and small businesses, but charge borrowers higher fees and interest rates to cover possible lossesMutual FundsA company that pools the savings of many individuals and invest this money in a variety of stocks and bonds issued by other companiesLife Insurance CompaniesProvide financial protection to the family, or other beneficiaries, of the insured when the customer pays annual PREMIUM. (bill)Pension FundsAre set up by employers to collect deposits and distribute payments to retirees
9 The Flow of Savings and Investments Financial intermediaries accept funds from savers and make loans to investors.Financial IntermediariesSavers make deposits to…Commercial banksSavings & loan associationsSavings banksMutual savings banksCredit unionsFinancial Institutions that make loans to…Life insurance companiesMutual fundsPension fundsFinance companiesInvestors
12 Stock Exchanges The New York Stock Exchange (NYSE) The NYSE is the country’s largest stock exchange. Only stocks for the largest and most established companies are traded on the NYSE.
13 Stock Exchanges NASDAQ-AMEX NASDAQ-AMEX is an exchange that specializes in high-tech and energy stock.The OTC MarketThe OTC market (over-the-counter) is an electronic marketplace for stock that is not listed or traded on an organized exchange (listed on the NASDAQ)DaytradingDaytraders use computer programs to try and predict minute-by-minute price changes in hopes of earning a profit.
14 Stock Performance Indexes The Dow Jones Industrial Average (DJIA)The Dow is an index that shows the stocks of 30 companiesThe Standards & Poor’s 500The S & P 500 is an index that tracks the performance of 500 different stocks in multiple MARKETs have changed in value.
15 What are Five Types of Bonds? 13Chapter 11, Section 2
16 U.S. Savings Bondsbond that offers a fixed rate of interest over a fixed period of timeattractive because they are not subject to state or local income taxesone of the safest types of investments because they are endorsed by the federal governmentBorrowing directly from savers
17 Money Market & Mutual Funds Money market mutual funds are special types of mutual funds.high liquidity and very short maturities are tradeda means for borrowing and lending in the short term, from several days to just under a yearInvestors receive higher interest than they would receive from a savings account or a CD.However, assets are not FDIC insured.13Chapter 11, Section 2
19 The Bull vs. The BearWhen the stock market rises steadily over time, a bull market exists.When the stock market falls over a period of time, it’s called a bear market.
20 RISK Bear market < bigger risk =high return Mutual funds reduce riskShares in a company that invests in stocks and bonds of other companiesDiversification reduces riskExpert analysis and adviceDividends
21 Equitiesstock or any other security representing an ownership interest in a corporation
22 FuturesFinancial contract obligating the buyer to purchase an asset (or the seller to sell an asset), at a predetermined future date and priceCan’t back out or change your mind
23 OptionsFinancial derivative that represents a contract sold by one party (option writer) to another party (option holder)The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date)