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Cash Check Debit card house

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Why does the US dollar have such a good value?

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Chapter 10

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Chapter 10 Section 1 SSEMI1b Explain the role of money as a medium of exchange and how it facilitates exchange.

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Use of money is a social custom Its role is to facilitate exchange Money itself is any asset accepted as payment for goods or services Without money we would barter like traditional societies Although barter works it can be complex and inefficient

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1. Medium of Exchange: commonly accepted payment 2. Unit of Account: standardized and easily measured 3. Store of Value: holds purchasing power over time

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What are the 6 characteristics of money?

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On the island of Yap, large circular stones are used for money. The main reason why this type of money serves its function as a medium of exchange is because it is A very portable B highly divisible C accepted as payment D prized in foreign transactions

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Barter http://www.youtube.com/watch?v=J7hN Ot2Y0J8 http://www.youtube.com/watch?v=J7hN Ot2Y0J8 National Geographic Inside Americas Money Vault http://www.youtube.com/watch?v=WmV GYLTROnQ http://www.youtube.com/watch?v=WmV GYLTROnQ

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Durablelasts for an extended period Portableeasy to carry & exchange Divisibleeasily broken into measurable units Uniformsimilar in appearance and has a standard value ScarceNot overly printed or in too great abundance AcceptedSociety is certain that it has value

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Fiathas value because the government says so legal tender Representative stands in for money IOU, silver certificate Commodityhas other uses besides acting as money Tobacco, water

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Money supply all the money available in the economy This includes money in and out of banks Liquidity refers to how easily an asset can be turned into cash Federal Reserve tracks the amount of money in circulation or in the economy

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Chapter 10 Section 3

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The Financial Systemvarious markets, players and institutions that coordinate the channeling of funds between borrowers and savers Borrowersdemand money from the system with the knowledge that they will have to pay it back with interest Saverssupply money to the system with the expectation that it will be paid back to them with interest

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Investment Banksraise money for companies (perhaps even nations) and manage wealth of private investors (merchant bank) JPMorgan, Goldman Sachs Credit Unionscooperative lending for specific groups Marshland, Teachers Commercial Banksoffer a wide range of lending services to the public (retail bank) Bank of America, United Community

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Banks serve several purposes: 1. Store Moneysafe and insured 2. Vehicle for Saving variety of accounts available 3. Loansrenting money at a cost 4. Creditform of deferred payment Principal is amount owed Interest is cost of renting the principal

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FDIC preserves and promotes public confidence in the U.S. financial system by insuring depositors identifying, monitoring and addressing risks to the deposit insurance funds limiting the effect on the economy and the financial system when a bank or thrift institution fails

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Chapter 11 Section 1 A [financial] market is an aggregation of what people think the future is going to be like. ~ Dan Mathisson

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When a saver, or investor, makes a purchase on the financial market they gain a financial asset AKA securities, these are claims on a borrowers repayments and potential interest Most investors will not meet borrowers, they will move through an intermediary These are companies and institutions that offer financial products

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Dealing with intermediaries offers 3 advantages: 1. Sharing of risk institutions can diversify, or spread, an investors money out into multiple investments to reduce risk 2. Access to information Managers and companies provide portfolios and prospectuses that explain companies profits, losses, products, etc. 3. Liquidity Banks can offer a guaranteed return, or money back above what was investedsomething more secure than giving money to a friend

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Investing generally refers to the use of resources or assets to earn income or profit in the future There are many vehicles, or instruments, for investment such as property, stocks or bonds, savings, etc. Investing happens over the short or long term Investors look for return or the ratio of money gained to lost when searching for or evaluating opportunities

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Stock is a claim on part of a companys earnings as ownership They are sold in shares, or portions (AKA equities) Owning stock yields a profit 2 ways: 1. Dividendsa portion of a companys profits paid to investors during the year 2. Capital gainsto sell a stock for more than the price for which it was purchased

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Stock is purchased on a stock exchange a financial market An individual opens an an account with a brokerage firm and can purchase stock online Those trades are executed on the floor of a physical market NYSE is Americas oldest and largest and located on Wall Street, NYC

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Markets generally fluctuate constantly throughout a year or even a day When stock prices steadily rise it is called a bull market; steady fall is a bear market These prices are listed on many different indices: NASDAQfavors tech companies S&P 500tracks 500 companies (more diverse) DJIA30 largest American companies (Dow)

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Another common asset is a bondan IOU Investors loan money to a corporation or government and are repaid, with interest, over a period of time When full payment is due back to the investor, the bond has matured How much the bond would pay if held to maturity is its yield

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These and other complex financial products are traded on financial markets Capital Markets offer lending for over a year Money Markets offer lending for less than year Primary markets allow on the original buyer to redeem payment Secondary markets allow the asset to be resold

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Eric received a $2,000 bonus from his employer. He deposited the entire amount in a one-year certificate of deposit with a simple interest rate of 5%. When the CD matured, how much interest had Eric earned? A $10 B $20 C $50 D $100