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Published byWinfred Flowers Modified over 8 years ago
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The Free Market System Financial Markets
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Saving and Investment 1.investment: the purchase of an asset in hopes it appreciates or generates income ●Examples: going to college, building a factory, buying real estate ●involves risk and reward ●key to economic growth in free market
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“The Financial System” SAVERS (Households, Businesses) INTERMEDIARIES (Banks, Financial companies) BORROWERS (Governments, Businesses) Makes investment possible by allowing the transfer of money between savers and borrowers
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Saving and Investment 2.diversification: spreading investments to reduce risk 3.return: the money an investor receives above and beyond the initial investment ●low risk and more liquidity = low return ●high risk and less liquidity = high return
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Financial Assets 1.bond: a loan given to an entity for a defined period of time at a fixed interest rate ●treasury bond: issued by U.S. government ●municipal bond: issued by State or local governments ●corporate bond: issued by corporations
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Types of Bonds TYPEISSUERRISKUSE TreasuryFederal Government Very LowFederal Projects MunicipalState & Local Governments LowLocal Projects CorporateCorporationsModerateBusiness Expansion
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Financial Assets 2.savings account: a deposit with a modest interest rate allowing frequent withdrawal 3.certificates of deposit (CDs): a time deposit with a higher interest rate intended to be held until maturity 4.mutual funds: a holding that pools money from many people to purchase stocks and/or bonds
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The Stock Market 1.stock: a claim of ownership in a corporation that is sold in portions called shares
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The Stock Market 2.Making a Profit ●dividend: a portion of a corporation’s profit paid to shareholders ●capital gains: the difference between a higher selling and lower purchase price ●capital loss: the difference between a lower selling and higher purchase price
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LaFleur’s Crazy Kicks Co. $100 $50 You Own: 5 shares at $100 per share 10 shares at $50 per share $500
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The Stock Market 3.stockbroker: person who links buyers and sellers of stock
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The Stock Market 4.stock exchange: a market for buying and selling stock
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The Stock Market 4.stock exchange: ●NYSE: the largest exchange that handles transactions for “blue chip” companies ●NASDAQ: an electronic exchange that handles technology stocks ●AMEX: generally lists smaller companies
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The Stock Market 5.Market Trends ●bull market: a steady rise in the market associated with confidence and the purchasing of stock by investors in anticipations of higher prices in future
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The Stock Market 5.Market Trends ●bear market: a steady drop in the market associated with pessimism and the selling of stock by investors in anticipation of lower prices in future
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Bull vs. Bear Markets
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The Stock Market 6.Stock Indexes ●Dow Jones Industrial Average: compiles the prices of the 30 largest and most widely held public companies in U.S. ●S&P 500: gives a broader picture of stock performance
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The Stock Market 7.Determinants of Stock Price ●corporate finances: corporations publish quarterly earnings reports ●business news: acquisitions, mergers, restructuring, product releases ●political events: elections, war, bailouts ●government statistics: unemployment, inflation, interests rates
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