1 / 38

Chapter 11: Financial Markets

Chapter 11: Financial Markets. BW: Grab folders/3-hole punch packet from back Complete Page 97: Chapter Warm-up. 11.1. “What are benefits and risks of saving and investing?” Objectives to know: How investing contribute to free-enterprise

errin
Télécharger la présentation

Chapter 11: Financial Markets

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Chapter 11: Financial Markets BW: Grab folders/3-hole punch packet from back Complete Page 97: Chapter Warm-up

  2. 11.1 • “What are benefits and risks of saving and investing?” • Objectives to know: • How investing contribute to free-enterprise • How the financial system brings together savers and borrowers • Role of financial intermediaries in financial system • Trade-offs among liquidity, return, and risk

  3. Introduction • What are benefits/risks of saving/investing? • Savings you deposit in a bank will grow w/little risk • Investing, while riskier, may earn larger return for same investment; or prove devastating.

  4. Investing and Free Enterprise • Investing is essential to free enterprise system • Promotes economic growth and contributes to nations wealth • Deposits by people into savings are loaned to businesses • Allows businesses to increase production • Leading to expansion/growth

  5. The Financial System • Est.d so investments can take place • Saving money= loaning it to other people • Savers receive reciept as confirmation • Statements or bonds • Represent the claims, or financial assets, of the borrower • Financial systems bring savers/investors together • Fuels economic growth • Savers include: • Households • Individuals • Businesses • Investors include: • Businesses • Government

  6. Financial Intermediaries • Include banks and other financial institutions • Accept funds from savers to make loans to investors

  7. Sharing Risk • Dealing w/financial intermediaries offers 3 advantages • Sharing Risk • Providing Information • Providing Liquidity • Sharing Risk • Diversification allows you to spread out investments and not “all eggs in one basket” • Sharing risk helps ward against losing everything on one bad investment • Types • Read/answer 11.2 Chart (pg. 280)

  8. Providing Info and Liquidity • They provide both lenders/borrowers vital data that saves them the time/money of gathering selves. • EX: Portfolios or prospectus. • Also allows people to get access to their money with they need it, depending on how liquid it is.

  9. Return and Risk • Some investments, like CDs, are very safe b/c insured by govt. • Investing in a new business is far riskier, but can have larger gains • General info: • Higher potential return = higher the risk • Evaluating investments try to balance risks with expected rewards

  10. Lesson Closing • 98, 54, and 58 in workbook • 58 will have a little time for BW tomorrow • Watch Case Study Video • Get marker and Check Multiple Choice of test

  11. Chapter 11.2 BW: Finish S.1 Quiz: Answer Case study on pg.281

  12. Chapter 11.2 • “Why are bonds bought and sold?” • Objectives to know • Characteristics of bonds as financial assets • Different types of bonds • Characteristics of other types of financial assets • 4 different types of financial asset markets • Key Terms (3) • http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch11/Econ_OnlineLectureNotes_ch11_s2.swf

  13. Introduction • Why are bonds bought and sold? • Bonds are sold by govts and/or corporations to finance projects • Bonds offer a higher return than savings accounts, although generally riskier than savings accounts

  14. Bonds as Financial Assets • Bonds are loans that represent debt that the seller must repay to the investor • 3 Basic components • Coupon Rate: interest rate that bond issuer will pay • Maturity: Time which payment to holder is due • Par Value: Amount paid to holder at maturity

  15. Discounts from Par • Investors can not only earn money from the interest on their bonds but also by buying bonds at a discount • Read and Answer 11.3

  16. Bond Ratings • In order to decide which bonds to buy, investors can check bond quality through independent firms that issue credit ratings • Rate bonds on the issue’s financial strength, ability to make interest payments, and ability to repay principle when bond matures • High grade, such as AAA, means safe investment

  17. Advantages v Disadvantages Advantages Disadvantages • Once bond is sold, coupon rate remains same • Company does not have to share profits w/holders if doing well • Company must make fixed interest payments and cannot change its interest payments • Firm’s bonds may be given a low bond rating and be harder to sell when not doing well

  18. Types of Bonds Municipal Bonds Savings Bond Treasury Bonds, Bills, Notes • State/localgovt.s issue bonds to finance projects • Highways, libraries, parks, and schools • Relatively save and attractive long-term investments • Low denominations • Issued by U.S. govt. • Govt. pays interest • U.S. treasury issues bonds, bills, and notes • Among safest investments

  19. Corporate and Junk Bonds • Corporate bonds are issues by a corporation to raise money to expand business • Moderate risk, bc investors depend on corporation • Junk bonds • High risk and potentially high return • Investors face strong possibility that some of firms may default on their debt

  20. Other types of Financial Assets Certificates of Deposit Money Market Mutual Funds • CDs through banks • Lend out funds deposited in CDs for a fixed amount of time • Investors receive higher interest on a MMMF than savings account • Higher interest b/c not covered by FDIC insurance

  21. Financial Assets Markets • Bonds, CDs, and MMMFs are traded on financial asset markets • One way to classify markets is according to length of time funds are lent • Capital Markets • Money is lent for periods longer than a year (CDs) • Money Markets • Money is lent for periods of a year or less • Include treasury bills and money market mutual funds

  22. Financial Assets Markets • Markets may also be classified according to whether or not assets can be resold to other buyers • Primary Markets • Financial assets can be redeemed only by original holder • Savings bonds and small CDs • Secondary Markets • Financial assets can be resold, which provides liquidity to investors

  23. Lesson Closing • Pearson Video • How Economy Works • Exit Card Questions • What are 2 ways of classifying financial asset markets? • What type of bond might have been used to fund construction of your school? • HW: • Workbook: Pgs. 99,, 61, 65 • 65=Quiz, little time to work on tomorrow

  24. Chapter 11: Financial MarketsSection 3 Finish up S.2 Quiz

  25. 11.1 • “How does the stock market work?” • Objectives to know • Benefits/risks of buying stocks • How stocks are traded • How stock performance is measured • Great Crash of 29’ and recent events • Key Terms (3) • http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch11/Econ_OnlineLectureNotes_ch11_s3.swf

  26. Introduction • How does the Stock Market Work? • Stock, or shares in company, are bought/sold on the stock market • Brokers help individuals/businesses invest their money in the stock market • Investors keep track of the stock market by checking local paper. • When doing well people may see large returns on investments • Vice-versa when market doing poorly

  27. Benefits of Buying Stock • In addition to selling bonds, corporations can raise money by selling stock shares • Benefits of buying stocks: • Dividends • Sharing in part of firms profits • Usually paid four times/year (quarterly) • Larger the profit of company, larger the dividend • Capital Gains • Selling the stock for more than paid for it • Loss=selling for less (you’ve all seen both in game)

  28. Types of Stock • Stocks may be classified by whether or not it pays dividends • Income stock • Provides investors w/income by paying dividends • Growth Stock • Pays few or no dividends and earnings are reinvested in the company

  29. Types of Stock • Classified by whether or not the holder has a voice in company • Common stock • Holders are voting members of the company • Preferred Stock • Holders are nonvoting members of company • Common Stock owners may initiate a stock split when stock price becomes to high. • Berkshire did this in game!

  30. Risks of Buying Stock • Buying stock is risky • B/C dividends are determined by how well a company is doing • B/C of laws of bankruptcy • Stocks end up riskier than bonds since bondholders are paid before stockholders in case of company bankruptcy

  31. How Stocks are Traded • If you want to buy stock contact a stock-broker • Gives advise on stocks to guy • You buy stocks on a secondary market known as a stock exchange • NYSE is country’s largest and most powerful • Handle top stock/bond exchanges in U.S. and world • Nasdaq is 2nd largest securities market and largest electronic market

  32. Futures and Options • Futures are contracts to buy/sell commodities at a particular date in the future at a specified price today • Grain and livestock • Options are contracts that give investors the choice to buy or sell stock and other financial assets • Most people who buy stock hold their investment for a significant period • Day traders trade stocks daily, which is very risky

  33. Measuring Stock Performance • Bull Market • When stock market rises steadily or a period of time • Bear Market • When stock market falls or is stagnant for period • Dow Jones Industrial Average • Measure stock performance • Represents the average value of a set of stocks • Reported in points

  34. Great Crash: Read Great Crash : 296 • In the 1920s, stock market was soaring • Speculation and buying on margin (credit) led to crash that killed economy • Dow fell steadily in Sept. 1929 • People began selling shares • Companies couldn’t keep up. • Oct. 1929 16.4 million shares sold and market crashed • Aftermath: Crash led to Great Depression • Now people saw stocks as risky and avoided them • By 1980s, w/new mutual funds Americans gained confidence • Crashed again in 1987 but recovered much faster

  35. Scandals and Market Today • By 1990s people began to buy more stocks • Investors began to worry that companies could not make enough money to justify high priced stocks • Enron scandal causes investors to question knowledge of companies investing in • 2008, stock markets begins fall • Causes major economic crisis in U.S.

  36. Lesson Closing • Pearson Videos • Visual Glossary • Action Graphs • Case Study Video • Workbook • All unfinished 100-104 • Section quizzes • Quiz Tuesday • Sub Monday: Will give you practice Test to take • I will not provide answers to it though.

More Related