Notes from Chapter 11 Section 1. Given on 4/14/2015

1. BELL RINGER 04.14.2015
Write complete question and answer on your Bell Ringer form.
Describe your first
attempts at saving
money. How did you
do it? What were you
saving for? How long
did it take to reach
your goal?

2. ECONOMICS
April 14, 2015
Chapter 11: Financial Markets
Section 11.1: Saving and Investing

3. INVESTING AND FREE
ENTERPRISE
Investment takes resources that normally
would have been consumed and redirects
them to create profits and/or benefits in the
future.
Investment promotes economic growth and
contributes to a nation’s wealth.
11.1

4. THE FINANCIAL SYSTEM
Our economy needs a financial system in
order for investment to take place.
This system allows money to be transferred
between savers and borrowers.
When you save, you are really loaning
money to someone else (the bank or an
individual).
11.1

5. THE FINANCIAL SYSTEM
Documents for savings accounts, C.D.s, or
bonds represent financial assets, or
sources of money that could be liquidated
or seized in order to pay debts.
Money flows from savers or investors
through a financial institution to borrowers.
11.1

6. FINANCIAL INTERMEDIARIES
Financial intermediaries are the “go-
betweens” that create a path from the
savers to the borrowers, and they include
banks, savings and loan associations,
credit unions, finance companies, mutual
funds, life insurance companies, and
pension funds.
11.1

7. FINANCIAL INTERMEDIARIES
While some invest money directly into
businesses (stocks), other prefer to lessen
the risk by using the more conservative
means of growing wealth listed as
intermediaries, which lessen the risk of
investment by diversification.
11.1

8. FINANCIAL INTERMEDIARIES
A collection of stocks gathered together as
investments for a mutual fund or an
individual is known as a portfolio.
The information intermediaries provide
potential investors or savers is called a
prospectus.
11.1

9. FINANCIAL INTERMEDIARIES
Financial intermediaries provide investors
or savers with liquidity (changing an asset
into cash).
This can be an attractive feature of one
intermediary over another.
11.1

10. RISK, LIQUIDITY, AND RETURN
Return is the money received after an
investment or a savings account pays off.
A higher interest rate can be earned if you
give up a degree of liquidity.
In other words, return increases as liquidity
decreases.
11.1

11. RISK, LIQUIDITY, AND RETURN
A higher return can also be expected when
the risk of losing your investment goes up.
Return increases as risk increases.
This works both in expectations in investing
and in loaning money.
11.1

12. CHECK QUESTION 11.1
Write complete question and answer on your Bell Ringer form.
Your friend Bill offers to pay you
interest if you loan him money to buy
concert tickets. What things do you
consider before deciding on how much
interest to charge Bill?