The Best of Chapter 12. Financial Assets and the Financial System For people to use the savings of others, the economy must have a Financial System –

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Presentation transcript:

The Best of Chapter 12

Financial Assets and the Financial System For people to use the savings of others, the economy must have a Financial System – a network of savers, investors, and financial institutions that work together

Financial Assets – claims on property and income of the borrower People can save in many ways: 1. open a savings account 2. purchase a certificate of deposit – a receipt showing that an investor has made an interest-bearing loan to a bank, a government, or corporate bond

The Circular Flow of Funds The circular flow that takes place when funds are transferred from savers to borrowers. Look at Figure 12.1 on page 315

Nonbank Financial Intermediaries Non-depository institutions that channel savings to borrowers Examples: Insurance companies, pension fund, real estate investment trust

Investing Equities (stocks) – represents as partial ownership of a corporation Equity markets are efficient – most investors diversity their portfolio to protect against a stock market crash

Stock Markets New York Stock Exchange (NYSE) – the oldest & largest Located in NYC American Stock Exchange (AMEX) – Located in NYC

Bull & Bear Market Bull Market: when the market/economy is strong Bear Market: when the market/economy is weak