Money

Which of the following is not a liquid asset?CashCheckDebit cardhousewarmupWhy does the US dollar have such a good value?WarmupWhere do the billionaires live?

MoneyChapter 10

Understanding Money Chapter 10 Section 1

SSEMI1b Explain the role of money as a medium of exchange and how it facilitates exchange.

What is Money?Use of money is a social custom Its role is to facilitate exchangeMoney itself is any asset accepted as payment for goods or servicesWithout money we would barter like traditional societiesAlthough barter works it can be complex and inefficient

Functions of MoneyMedium of Exchange: commonly accepted payment

Unit of Account: standardized and easily measured

Store of Value: holds purchasing power over time

Warmup What are the 6 characteristics of money?WarmupWrite the question and answers On the island of Yap, large circular stonesare used for money. The main reason whythis type of money serves its function as amedium of exchange is because it isA very portableB highly divisibleC accepted as paymentD prized in foreign transactionsBarter

http://www.youtube.com/watch?v=J7hNOt2Y0J8

National Geographic Inside Americas Money Vaulthttp://www.youtube.com/watch?v=WmVGYLTROnQ

Characteristics of MoneyDurablelasts for an extended periodPortableeasy to carry & exchangeDivisibleeasily broken into measurable unitsUniformsimilar in appearance and has a standard valueScarceNot overly printed or in too great abundance AcceptedSociety is certain that it has value

12Types of MoneyFiathas value because the government says solegal tender Representative stands in for moneyIOU, silver certificateCommodityhas other uses besides acting as money Tobacco, water

How Much Money is Out There?Money supply all the money available in the economyThis includes money in and out of banksLiquidity refers to how easily an asset can be turned into cashFederal Reserve tracks the amount of money in circulation or in the economy

What if We Redesigned the Dollar?

What Images Are Important?

Should We Just Use Presidents?

General Banking and FinanceChapter 10 Section 3

FinanceThe 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 interestSaverssupply money to the system with the expectation that it will be paid back to them with interest Banks and InstitutionsInvestment Banksraise money for companies (perhaps even nations) and manage wealth of private investors (merchant bank)JPMorgan, Goldman SachsCredit Unionscooperative lending for specific groupsMarshland, TeachersCommercial Banksoffer a wide range of lending services to the public (retail bank)Bank of America, United Community

Functions of a BankBanks serve several purposes:Store Moneysafe and insuredVehicle for Saving variety of accounts availableLoansrenting money at a costCreditform of deferred payment Principal is amount owedInterest is cost of renting the principal

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

Which of the following is primarilyresponsible for the control of the money supply?

A the United States TreasuryB the Federal Reserve SystemC the Federal Deposit InsuranceCorporationD the Comptroller of the Currency

Understanding Financial Markets and Their ComponentsChapter 11 Section 1

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

Financial MarketsWhen 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 intermediaryThese are companies and institutions that offer financial products

Diversify Your Bonds!Dealing with intermediaries offers 3 advantages: Sharing of riskinstitutions can diversify, or spread, an investors money out into multiple investments to reduce riskAccess to informationManagers and companies provide portfolios and prospectuses that explain companies profits, losses, products, etc.LiquidityBanks can offer a guaranteed return, or money back above what was investedsomething more secure than giving money to a friend

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

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

How Do I Buy Stock? Stock is purchased on a stock exchange a financial marketAn individual opens an an account with a brokerage firm and can purchase stock onlineThose trades are executed on the floor of a physical market NYSE is Americas oldest and largest and located on Wall Street, NYC

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

Financial AssetsBonds Another common asset is a bondan IOUInvestors loan money to a corporation or government and are repaid, with interest, over a period of timeWhen full payment is due back to the investor, the bond has maturedHow much the bond would pay if held to maturity is its yield

MarketsWheres the Money?These and other complex financial products are traded on financial markets

Capital Markets offer lending for over a yearMoney Markets offer lending for less than yearPrimary markets allow on the original buyer to redeem paymentSecondary markets allow the asset to be resold

Eric received a $2,000 bonus from hisemployer. He deposited the entire amountin a one-year certificate of deposit with asimple interest rate of 5%. When the CDmatured, how much interest had Ericearned?A $10B $20C $50D $100