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TODAY’S FINANCIAL MARKETS AND INSTITUTIONS

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TODAY’S FINANCIAL MARKETS AND INSTITUTIONS

  1. 1. FinancialInstitutions55UsersSaversFinancialmarkets
  2. 2. MONEY MARKETINSTRUMENTS
  3. 3. BONDSA DEBT INVESTMENT IN WHICHAN INVESTOR LOANS MONEY TO ANENTITY (CORPORATE ORGOVERNMENTAL) THAT BORROWSTHE FUNDS FOR A DEFINED PERIODOF TIME AT A FIXED INTEREST RATE
  4. 4. MUNICIPALBONDSBondsissued bystate orIt has twotypes;Revenuebond(Issueswhoseproceeds willbe used topay for aproject thatwill producerevenue)GENERALOBLIGATIONBOND (BONDWHOSEPROCEEDSARE TO BEUSED TO PAYFOR APROJECTTHAT WILLNOTPRODUCE ANYREVENUE)
  5. 5. .
  6. 6. MORTGAGE PASSTHROUGH SECURITYThese securities arebacked by pool ofmortgage loanspurchased fromlenders such assaving banks.
  7. 7. ISSUER TYPES OFSECURITYRISK SPECIALFEATURESU.S TREASURY (GOVERNMENT BONDS) MATURE IN 10 YEARS OR FEWERFROM DATE OF ISSUETREASURY BONDS AND NOTESCARRY VIRTUALLY NO RISKSTATE AND LOCAL GOVERNMENTS(MUNICIPAL BONDS)GENERAL OBLIGAGTION:ISSSUED BY STATE OR LOCALGOVERNMENT UNITS WITHTAXING AUTHORITY :BACKED BYTHE FULL FAITH AND CREDIT OFTHE STATE WHERE ISSUEDREVENUE :ISSUED TO PAY FORPROJECT S THAT GENERATEREVENUE ,SUCH AS WATERSYSTEMS OR TOLLROADS;REVENUE FROMPROJECT USED TO PAYPRINCIPAL AND INTEREST.RISK VARIES ,DEPENDING ONTHE FINANCIAL HEALTH OFISSUERMOST LARGE MUNICIPAL BONDISSUES ARE RELATED IN TERMSOF CREDIT RISK(AAA OR AAA ISTHE HIGHEST RATING)INTEREST IS EXEMPT FROMSTATE INCOME TAXESCORPORATIONS SECURED BONDS :BONDS AREBACKED BY SPECIFIC ASSET SUNSECURED BONDS(DEBENTURES):BACKED BY THEFINANCIAL HEALTH ANDREPUTATION OF THE ISSUERRISK VARIES DEPENDING ON THEFINANCIAL HEALTH OF THEISSUERMOST CORPORATE BOND ISSUESARE RELATED IN TERMS OFCREDIT RISK (AAA OR AAA ISTHE HIGHEST RATING)INTEREST IS EXEMPT FROMFEDERAL INCOME TAXES ANDMAY BE EXEMPT FROM STATEINCOME TAXESA FEW COOPERATE BONDS ARECONVERTIBLE INTO SHARES OFCOMMON STOCK OF THEISSUING COMPANYFINANCIAL INSTITUTIONS MORTAGE PASS THROUGHSECURITIESGENERALLY VERY LOW RISK THEY PAY MONTHLY INCOMECONSISTING OF BOTH INTERESTAND PRINCIPAL.
  8. 8. QUALITY RATING FOR BONDOne tool bondinvestor use toasses the bond isits bond ratingTwo factorsdetermines theprice of bondIts risk and itsinterest rate
  9. 9. HIGHEST AAA INVESTMENT GRADEAAABBBBB SPECULATIVE GRADEBCCCCCLOWEST C
  10. 10. STOCK
  11. 11. PREFERREDSTOCKwhoseholdersreceivepreference in thepaymentofdividendCONVERTIBLESECURITIESAn investmentthat can bechanged intoanother form.The mostcommonconvertiblesecurities areconvertiblebonds orconvertiblepreferredstock, whichcan bechanged intoequity orcommon stock

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