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Financial Markets

Financial Markets. Saving and investing. Saving and Investing. Principles in action- There a re both risk and reward for saving and investing Investment redirection of daily resources so that it will create income for the future

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Financial Markets

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  1. Financial Markets Saving and investing

  2. Saving and Investing • Principles in action- There a re both risk and reward for saving and investing • Investment redirection of daily resources so that it will create income for the future • The concepts of saving and investing create a future through planning • Business will invest new money into resources for the purpose of improvement

  3. Financial System • Financial system- the structures and mechanisms to allow transfers of money between savers and borrowers • Financial assets are cd, bank accounts, bonds, stocks, savings • Financial assets guarantee money borrowed

  4. Financial System • Flow of savings and investments Savers (make deposits) > Financial institutions > Investors • Financial Intermediaries- channel funds from savers to borrowers • Banks, Savings and loans, Credit Unions, Finance Companies, Mutual funds, Hedge Funds, Life Insurance

  5. Financial System • Mutual Funds- pools money of saver and investors together in order to invest in a broad range of companies in the market • Hedge Fund- private investment firms that take riskier strategies in order for the prospect of larger gains • Life Insurance- financial protection for families • Pension funds- retiree fund to create retirement wealth

  6. Financial System • Diversification- spreading out investment to decrease risk • Portfolios- collection of financial assets • Prospectus- business portfolio and financial report required by law • Liquidity is assets that can be quickly turned to cash • Liquidity and return- quick conversion • Return Risk- CD

  7. Bonds and Financial Assets • Principles in action is why bonds are sold • 3 components of bonds- • Coupon rate is the interest rate the bond issuer will pay to the investor/bondholder • Maturity is the time when payment is made to the bondholder, maturity 10,20,30 years • Par value assigned by the issuer, the amount to be paid to the bondholder at maturity • Yield is the annual rate of return

  8. Bonds and Financial Assets • Bonds at discount • Buying bonds at a discount, called dicount from par- 1000 bond for 960= maturity + int • Bond ratings –Standard poor, Moody • Rating highest AAA, Aaa/ BBB higher risk • Advantages- safe, bond rate will not fluctuate, bondholders do not hold interest in company • Disadvantages- Fixed interest payments no matter what, bond downgrading= selling at a discount

  9. Bonds and Financial Assets • Savings bonds = 50-10000 issued by govt • Treasury bonds= will sometimes not be changed by inflation, • Inflation indexed bonds • Municipal bonds- state and local govt, support infrastructure • Corporate bonds- 1000- 5000, not tax based can create moderate levels of risk • Junk Bonds- High risk = High Yield

  10. Bonds and Financial Assets • CD- certificate of deposit-varying investment • Money Market Mutual funds- not usually covered by the FDIC, riskier, Higher yields than CD • Capital Markets- money is lent for long periods of time • Money Markets- money lent 1 year or less • Primary market- assets only redeemed by original holder • Secondary market- assets can be sold or resold

  11. Stock Market • Stock is interest in company that is sold to raise revenue • Shares are stock issued in portions • Dividends are profits paid to shareholders • Capital gains- selling stock for more than purchase price • Income stock-provides investors with income • Growth stock- reinvestment with little or no payments

  12. Stock Market • Common stock – investor receives 1 vote=1 share • Preferred Stock- no voting but receive dividends, also before common stock holders if company goes under • Stock Split- when 1 share will split to lower cost in order to attract investors • Stock Trading- Stock broker will charge an up front fee and will work for brokerage firms which will buy stocks at discount and make a profit on the purchase price

  13. Stock Market • Stock Exchange- trade platform • NYSE- New York Stock Echange • Nasdaq- no trading floor – OTC • Futures – Commodities sold at a particular date in the future • Options- future contracts on stocks • Call options- buying shares at a specific date • Put option- selling shares at specific time in the future

  14. Stock Market • Day trading buying and selling short term • Bull market is when the market rises steadily over time • Bear market is a fall or stagnate over time • Dow Jones – is a group of stocks • S&P – NYSE, nasdaq 500 differant stocks

  15. 1920’s • In 1929 hoover was president and the market was booming • October 1929 the market hit a value of 87 billion • Speculation was widespread in this period • Oct. 23 dow dropped 21 points • Oct. 28 shares began to fall rapidly due to panic • Oct. 29 over 16 million shares sold more than triple the daily averages before

  16. 1920’s • Depression began and employment began to fall hitting an all time low of ¼ of the workforce was out of work • Stocks were viewed risky after black Tuesday up to the 1980’s • The dow repeated on Oct. 18 1987 but twice as hard but the market rebounded • 1990 stocks soared • 2001 stocks fell and the 911 attacks created a downturn • 2008 stocks took a downward turn loosing investors trillions of dollars

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