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Name ______________________________________________________________ Hour ______

Mr. Mize

Economics

Chapter 11 – Investment & Financial Markets

Financial Intermediaries

▪ Is a “______________” handling money for the investor – you pay this person or company to make investments for you.

▪ Includes____________________________________________________________________

▪ Also _______________________________________________________________________

▪ __________________________—pools individuals’ money to buy range of financial assets

▪ investors own ______________________________________________________

▪ Mutual funds let individuals ___________________________________________

▪ ________________________________ invest employees’ money, so will have more at retirement

▪ ___________________________________ invest income in financial assets

▪ let people save by building cash values, protect them against loss

Financial Asset Markets

▪ Financial markets categorized according to______________ and __________________

▪ Time

o ______________________________________________________________________________

▪ includes stocks, bonds, mortgages, long-term CDs

o ______________________________________________________________________________

▪ includes short-term CDs, Treasury bills

▪ Resalability

o ______________________________________________________________________________

▪ include _________________________________________________________________

▪ also market where first issue of stock sold through investment bankers

o ______________________________________________________________________________

▪ include stocks, bonds

What Kind of Risk Are You Willing to Take?

▪ Risk usually means ________________________________________________________________

o no-risk investments:________________________________________________________

o Safe investments risk interest rate may not _____________________________________

o Return on riskier investments depends on ______________________________________

▪ bonds less risky than stocks; bondholders paid off first

▪ Risk and Return

o

o

o

▪ if less time and money, may want safer investment

o __________________________________ gives better chance of offsetting a loss with a gain

The Stock Market

▪ Two ways to earn money in stock

o

o

▪ Types of Stock

o ______________________________—gives shareholders voting rights, share of profits

▪ one vote per share owned to elect board of directors

o ___________________________—gives shareholders share of profits, no voting rights

▪

▪

Trading Stock

▪ Organized Stock Exchanges

o

▪ traditionally, each stock auctioned from trading post on exchange floor

▪ today, ________________________________________________________

o _________________________________________ companies smaller than on the NYSE

▪ Electronic Markets

o Over-the-counter (OTC) market for stocks ______________________________________

o _____________ is centralized computer system for OTC trading

▪ Recent Developments

o

▪ Through electronic communications networks (ECNs), ________________________

▪ computer technology matches buyers, sellers automatically; rapid trades

▪ Measuring How Stocks Perform

▪

o U.S. indexes: _____________________________________________________________

o Since 1896, Dow Jones Industrial Average changed with U.S. economy

▪ Includes ______________________________________________________________

▪ uses points to measure changes in prices at which stocks traded

▪ Tracking the Dow

o

o

o Many things impact stock performance

▪

Other Financial Instruments

▪ Certificates of Deposit

o

o

▪ longer maturity dates pay higher interest rates

o Federal government insures funds up to $100,000

o Risks: ______________________________________________________________________

▪ Money Market Mutual Funds

o MMMFs’ financial assets have _______________________________________

o Give higher yield than savings accounts with similar liquidity

▪ can redeem shares by check, phone, electronic transfer

o

o

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