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Published byOctavia Joseph Modified over 7 years ago
Investment- the act of redirecting resources from being used today so they can be used to create future benefits When people save or invest, that money is used by business to expand=economic growth
Financial assets are documents that show a person made an investment A financial system allows the transfer of money between savers and borrowers
Financial Intermediaries are institutions that help channel funds from savers to borrowers Banks, credit unions Finance Companies Mutual Funds Life Insurance Companies Pension Funds
Diversification is the spreading out of investments to reduce risk Financial Intermediaries save time/money because they do the research for investments
Return is the money an investor receives above and beyond the sum of money initially invested
Remember, investing in a friend’s company could double your money, but the company could fail The higher the potential return of the investment, the great the risk involved
Bonds are loans that the government or a corporation must repay to the investor. Bonds pay a fixed amount of interest for a set amount of time
Advantages: Unlike stocks, bonds are not shares of ownership in a company, meaning the price does not go up or down
Disadvantages: Whoever issues the bond must make fixed payments, even if times are tough If issuer cannot maintain financial health, difficult to sell bonds
Savings- issues by the US government Treasury- US Treasury Department Municipal- state and local governments Corporate- corporation issued (to expand business
Corporations raise money by issuing stock, which represents ownership in the company. A portion of stock is called a share.
Stockowners earn a profit in two ways: 1) Dividends- payments made to the stockholder by the company (earned profit) 2) Capital gain- sell stock for more than they paid for it
Those who buy common stock are voting members Those who buy preferred are nonvoting members
Buying stock is RISKY! If the company experiences economic downturn, that means less dividends (profit) and reduces the value of the stock
A stockbroker is a person who links buyers and sellers of stock Stockbrokers work for brokerage firms, or business that specialize in trading stock Stocks are sold on the stock exchange, which are markets for buying and selling stock
The New York Stock Exchange (NYSE) is the world’s largest stock exchange.
Bull Market- when the stock market rises steadily over a period of time Bear Market- when the stock market falls steadily over a period of time
The Dow Jones Industrial Average,”The Dow” measures how stocks are doing
In 1929, the stock market crashed due to speculation, the practice of making high- risk investments with borrowed money in hopes of getting a big return As of the 1980s, only 25% of American households own stock
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