FINANCIAL MARKETS CHAPTER 12.1

Objective: Understand how financial systems work together to transfer savings to investors

Warm up Questions: May 3, 2017 What would happed if no one saved money for the future?

Savings and Capital Formation Economic growth Loans Investments

Financial Assets and the Financial System Network Financial assets Borrower Financial intermediaries Circular Flow Government and business

Nonbank Financial Intermediaries Savings Installment contracts Loan consolidation Life insurance Investing Mutual funds Pension funds Real estate

What have you learned today about savings and the financial system? Closure Question What have you learned today about savings and the financial system?

Objective: Understand how financial strategies and financial assets work in the real world

Warm up Questions: May 4, 2017 What should be taken into account when investing money?

Basic Investment considerations High and low risk Goals Returns Avoid 401 (k) plan

Bonds as Financial Assets Three components Supply and demand Annual interest rate

Bond Rating The general term for a long-term loan in which a borrower agrees to pay a lender an interest rate (usually fixed) over the length of the loan and then repay the principal at the date of maturity. Ratings D-AAA: virtually zero chance of a default (Blue chip companies : Exxon Mobil) Default: failure to fulfill an obligation, especially to repay a loan

Financial Assets and Their Characteristics Certificates of deposit Corporate bonds Municipal bonds Saving bonds Treasury notes Treasury bills IRA’s

Markets for Financial Assets Capital markets: Capital markets are markets for buying and selling equity and debt instruments. Capital markets channel savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals. Money markets: Money markets are used for a short-term basis, usually for assets up to one year. Conversely, capital markets are used for long-term assets, which are any asset with maturity greater than one year. Capital markets include the equity (stock) market and debt (bond) market.

Primary markets:The primary market is the part of the capital market that deals with issuing of new securities. Companies, governments or public sector institutions can obtain funds through the sale of a new stock or bond issues through primary market. Secondary markets:A secondary market is a market where investors purchase securities or assets from other investors, rather than from issuing companies themselves. The national exchanges-such as the New York Stock Exchange and the NASDAQ are secondary markets.

Closure Question What have you learned today about how financial strategies and financial assets work in the real world how financial strategies and financial? assets work in the real world

Warm up Questions: May 5, 2017 Why do some people believe it's impossible to always win in the stock market?

Market Efficiency Efficient Market Hypothesis Diversify portfolios

Organized Stock Exchanges NYSE: 2,800 companies AMEX: 750 companies Regional stock exchanges World stock exchanges

Over-the-Counter Market OTC trades NASADQ

Measures of Stock Performance Dow-Jones Industrial Average Standards & Poor Bull vs. Bear market

Trading in the Future Spot market Futures market Future contracts Options market Call option Put option

Closure Question What have you learned today about how the stock market works? assets work in the real world