Drill 11/15 Why is it wise to invest your money? Why is it wise to invest your money? Why is a house a good investment? Why is a car a bad investment?

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Presentation transcript:

Drill 11/15 Why is it wise to invest your money? Why is it wise to invest your money? Why is a house a good investment? Why is a car a bad investment? Why is a house a good investment? Why is a car a bad investment?

Financial Markets + Investing

Investing Key Terms Investment Investment –The act of redirecting resources from being consumed to create future benefits Financial System Financial System –The system that transfers money from savers to borrowers

Mutual Fund Mutual Fund –Fund that pools the money of investors and invests the total in a variety of stocks, bonds and other assets Liquidity Liquidity –The ability to convert investment into cash quickly

Investing in a Market Financial Intermediaries Financial Intermediaries

Financial Intermediaries Helps channel funds from savers to borrowers Helps channel funds from savers to borrowers –Banks –Finance Companies –Mutual Funds –Life Insurance Companies –Pension Funds

Why use them? Reduce risk Reduce risk –Your money is pooled with other savers’ money and then lent out to a variety of investments –You are never investing 100% of your money through these firms

Provide Information Provide Information –By law the intermediaries have to provide you with accurate detailed information about their investments –This is called a PROSPECTUS

Provides Liquidity Provides Liquidity –You can get your money out of the bank at anytime –Investing in a physical good that would have to be sold off quickly may cause you to lose money

Investing Risks Credit Risk Credit Risk –You may not get your money back Liquidity Risk Liquidity Risk –You may not be able to convert your investment into cash quickly Inflation Rate Risk Inflation Rate Risk –If inflation is greater than the interest rate you will lose money Time Risk Time Risk –You may miss out on better investment opportunities

With a partner…. Investigate some of the different types of investment securities, namely bonds Investigate some of the different types of investment securities, namely bonds Answer questions 1-4 on page 283 Answer questions 1-4 on page 283 –We will go over it and collect at the end of class.