2. What is Money?  Accounting Measure  Standard of Value  Legal Tender  Financial Exchange  Purchasing Power

3. What Role Does Money Play in the Economy? Needs Food Water Shelter Wants Car iPhone Entertainment The economy’s job is to try to respond to these needs and wants with goods and services

4. Supply and Demand Demand (D)  How much of something people want –Price increases when demand increases –If more people want something, they will pay more for it Supply (S)  How much of something is available –Price decreases when supply increases –The greater the supply, the lower the value

5. The Supply and Demand Balance SupplyDemand Price

6. Equilibrium Price  The market price at which the supply of an item equals the quantity demanded Supply and Demand

7. Barter Economy What Would Happen if We Didn’t Have Money?  Trading goods and services between two or more parties without the use of money

8. Barter Economy Advantages  Benefits countries and companies –Exchanging goods and services rather than cash  Enables those that are lacking hard currency to obtain goods and services Disadvantages  Time and work  Difficult to “buy” small things What Would Happen if We Didn’t Have Money?

9. Personal Finance  Savers in your community –Businesses –Households Checking Accounts Savings Accounts CDs

10. Personal Finance Checking Accounts Pay bills Earn interest Debit card Deposit/Withdraw money Savings Accounts Deposit/Withdraw money Earn interest (higher rate than checking) Certificate of Deposit Fixed interest rate Term limit Cannot be withdrawn until maturity

11. Personal Finance  Why does an individual borrow money? –College –Buy a home –Buy a car  Borrowers in your community –Individuals –Governments

12. Personal Finance U.S. Savings Bonds Pays a fixed rate of interest over a fixed period of time Not subject to state or local income taxes One of the safest types of investments Mutual Funds A collection of stocks and/or bonds Gives small investors access to a well managed, diversified portfolio Stock Market Where an individual can buy and sell stocks on different exchanges The more risk, the higher the reward

13. Savings Account CDs Money Market Account U.S. Bonds Mutual Funds Stock Market  Write down how much money you would like to save each year Select one savings plan to put your money in: How Long Will it Take You to Become a Millionaire? Annual Investment

14.  Financial Intermediation –An institution (bank) that acts as the middleman between investors and firms raising funds –Facilitates the flow of money –Process of transferring funds through financial institutions Store and Lend Money What is the Role of Banks? InvestorsFirms

15. Interest Rate The Relationship Between Savers and Borrowers  Rate the bank pays an individual for saving with them  Rate the bank charges an individual to borrow money

16. Why do Financial Markets Exist?  Encourages the interaction between savers/investors and companies/governments  Made up of financial instruments (stocks and bonds)  Very liquid – the quicker that something can be converted to cash, the more liquid it is

17. Physical Exchange The New York Stock Exchange Where are Financial Assets Traded?  Physical Exchange  The world’s largest exchange  An exchange floor where stock transactions are completed

18. Electronic Exchange National Association of Securities Dealers Automated Quotations System Where are Financial Assets Traded?  Electronic Exchange  Exchange where approximately 3,300 companies trade  Most technology stocks are traded

19. Domestic Markets Domestic Versus International Markets A company does business within a specific country

20. International Markets Domestic Versus International Markets A company does business outside their own country

21. Primary vs. Secondary Markets  Initial Public Offering (IPO)  First time a company issues stock  Trading of securities after they are issued  Includes: Primary Market Secondary Market

22. What Factors Affect Financial Markets? Actions of Issuers and Investors GovernmentActions EconomicConditions InternationalEvents