Unit 4: Financial Markets (Kahoot and Notes)

Which of the following accounts has the highest liquidity? A. Money Market B. Savings C. Certificate of Deposit (CD) D. Share Certificate

B. Savings

Which of the following is true about federal treasuries? A. T-bills are short term; Treasury bonds are mid-term B. T-notes are mid-term; Treasury bonds are long-term C. T-bills are mid-term; Treasury bonds are long-term D. T-bills are mid-term; T-notes are long term

B. T-notes are mid-term; Treasury bonds are long-term

Which of the following is a profit-driven financial intermediary? A. Bond B. Credit Union C. Bank D. Stock

C. Bank

credit cards VS debit cards

CC: borrow money you don't have, build credit, possibility of overspending and falling into debt DC: only access the money you already have in your account, encourages good spending habits, reduces possibility of debt, doesn't help build credit, poor fraud protection

lowest rated bonds are...

D; bond is in default (issuer is not keeping up with payments)

money market accounts compared to savings and CDs

MM has less liquidity than savings but higher interest MM has more liquidity than CDs but lower interest

What does the U.S. Treasury Dept. issue?

T-bills, T-notes, and Treasury bonds

maturity of bonds

T-bills: 3, 6, or 12 months T-notes: 2-10 years Treasury bonds: 10-30 years

minimum payment

a percentage of your balance charged monthly; allows you to avoid late fees but not interest

fractional reserve banking

a system in which banks hold only a fraction of deposits as reserves

Who is the credit union open to?

anyone

liquid asset

converted to cash; will be rewarded with higher intent for giving up liquidity and vice versa (high liquidity, low return; low liquidity, high return)

three components of bonds are...

coupon rate, maturity, par value

A bond's interest rate is called a ___ and the time it is due is its ___

coupon rate; maturity

What type of system allows banks to loan deposits, but requires them to keep a minimum on hand?

fractional reserve

deposits in banking intermediaries are...

generally very safe and have limited return

savings account

generally very safe places to put money and offer high liquidity but low interest rates and limited returns

What does a company have to do in order to sell stock?

go public and issue an IPO

Who issues bonds?

governments and corporations

What do investors in junk bonds face?

high chances of losing their money but possibility of a high return from high interest rates

What do credit unions offer?

higher interest rates on deposits, lower interest rates on loans, and lower/ fewer fees than banks

banking financial intermediaries

include commercial banks, S & Ls (savings and loans), and credit unions

nonbank financial intermediaries

include mutual funds pension funds, and life insurance companies

If you want to invest your money in a stock that pays a steady stream of dividends, buy a(n)...

income stock

Stocks are sold as...

individual shares in corporation (public companies)

annual percentage rate (APR)

interest rate; fixed or variable (change according to economic circumstance)

credit cards

issued by banks and credit unions; allow the holder to borrow money to be repaid back to the issuer at a later date

corporate bonds

issued by businesses to raise money for growth and expansion; taxed as ordinary income; moderate level of risk; higher rates of interest must be paid

municipal bonds

issued by state and local governments and municipalities to finance projects (schools, highways, parks, etc.); they are safe investments

savings bonds

issued by the federal government; help pay for public work projects (buildings, roads, etc.)

What is both a truth about the DOW and a criticism of it?

it consists of 30 blue-chip companies

What does "going public and issuing an IPO" mean?

it is when a private company wishes to become a public company

What is a share in stocks?

it represents ownership (one share = one vote)

Referring to accounts at banking intermediaries, returns can be affected by...

liquidity (ease with which an asset can be turned into cash)

bonds

loans (IOUs) that represent debt that the government or corporation who issued the bond must pay to investor who bought it

If the account has low risk, it also has...

low return

A high-rated bond AAA bond has...

low risk, low return

junk bonds

low-rated, high-risk bonds issued by governments or corporations that have either defaulted in the past or at at risk of doing so

annual fee

many cards charge none while some as mcc has $80 per year

credit limit

maximum amount of credit you can charge

If I give up some liquidity for a slightly higher interest rate, I'm putting my money into a...

money market account

LAUSD's Measure G bond is a...

municipal bond

Income on these types of investments is tax-free at the federal and state levels

municipal bonds

stock market is...

not safe but can offer high returns

stock splits

occurs when a company believes its share price is too high and wants to make it more affordable to small investors

bear market

occurs when stock prices are steadily falling over time

NYSE

oldest and largest of U.S. stock markets; sold both on auction on its floor and electronically

NASDAQ

over-the-counter exchange that uses a centralized computer system to make trades; most modern technology companies are listed on NASDAQ

par value (face value or principal)

the amount the investors pay for the bond

coupon rate

the interest rate to be paid to the bondholder

penalty will be paid for CDs if...

you decide to remove your money before maturity

advantages to bond issuers

1. Bond interest rates are fixed; issuer knows how much it will have to pay in the future 2. Bonds represent debt; issuer does not have to charge control or profit with the bondholder

disadvantages of "going public"

1. Difficult and expensive start-up costs 2. Heavy regulation by the SEC 3. Loss of control for original owners

What is unique about savings bonds?

1. Given as gifts to young people 2. Risk-free due to government's ability to tax/ raise money 3. Paper bonds are no longer sold 4. Only type of bonds that are no sold on the secondary market meaning original owner cannot sell them to somebody else

cons of credit cards

1. It is easy to run up a high balance very quickly 2. Paying interest on a regular basis can be very expensive 3. Missing payments leads to late fees and low credit scores

What are the two reasons why munis are attractive to investors?

1. Often have tangible local benefits 2. Interest is not taxed at federal or state law

disadvantages to bond issuers

1. The company must always make its payments whether they are doing well or not 2. Potential for poor financial health to cause bonds to be downgraded

pros of credit cards

1. Using the card responsibly teaches good money management skills and leads to higher credit scores 2. They allow you to pay for something you don't have the cash on hand for 3. They are convenient for travel, emergencies, etc. 4. Many cards offer bonus rewards programs

In a 2-for-1 stock split, 100 shares at $300 become...

200 shares at $150

Why is The Dow criticized?

30 companies is too few to actually reflect the entire economy; S & P 500 is more representative

If I want to know what a particular stocks price trend has been I would check its...

52-week range

Which of the following will reward you with higher interest rates for giving up liquidity? A. CDs B. Savings C. Money Market D. Amazon

A. CDs

characteristics of a credit card

APR, balance, minimum payment, grace period, credit limit, annual fee

financial system

based on a fundamental idea that there are people/ institutions who have money they don't want to spend and people/ institutions who want to use that money

How are bond rating given?

based on they risk by companies (Standard & Poor's and Moody's) which help investors decide which ones they want to buy

for teens under 18 years old, you can...

be added as an authorized user on a parent's account; purchases can be made and these will be reflected on a credit report but parents are financially liable

The Dow

best known stock index; tracks the stocks of 30 blue-chip (large and successful) companies

financial intermediaries

bring savers and borrowers together by taking in deposits from savers and providing loans to individuals and businesses

Using the DOW and/or the S & P 500, an investor can tell that stocks are going up in a...

bull market

What are the two ways you can make money in the stock market as an investor?

capital gains (buy low, sell high), dividends

CDs

chosen for fixed terms (6 months to 5 years); due to limited liquidity, they offer higher interest rates than savings accounts

money market accounts

combination of the pros and cons of savings and CDs; must keep minimum of $2,000 in account at all times thus gaining higher interest for giving up some liquidity

I want to make sure I have voting rights so I buy...

common stock

types of stock

common stock: gives the shareholders ownership and voting rights preferred stock: gives shareholders ownership but not voting rights; get preferential treatment over common stockholders in terms of dividends payments

What is a dividend?

company profits paid to shareholders

What do CDs offer?

compound interest (gain interest on both your principal and previously gained interest)

Holders of a corporate bond have a claim on the company's...

debt

Bonds represent ___, but not ___

debt; ownership

How much money is insured by the federal government in commercial banks

deposits up to $250,000 through the FDIC

Savings bonds are issued by the ___ government and can't be ___

federal; resold

bonds pay a...

fixed-rate of interest at regular intervals for the life of the bond and generally low-risk investments

How do issuers of credit cards want you to pay money off?

prefer you make the minimum payment

commercial banks

profit-driven private intuitions providing a wide range of services (checking/ savings accounts, loans, and credit cards) to both individuals and businesses

depositing money in an intermediary...

provides it with funds to loan to borrowers (must keep a certain %)

bull market

refers to a time when stock prices are rising

personal investing

rewarded by risking your money with a high return (profit) but might also lose your money (high risk, high return; low risk, low return)

financial investment

saving, buying stocks or bonds, purchasing real estate, etc. in order to generate financial gain in the future

stock market/ exchange

secondary market where securites (stocks and bonds) are bought and resold

credit unions

service-oriented cooperatives providing similar functions as banks

for 18-21 year olds to get a credit card, they must...

show proof of income to get a card in there name or else get a parent to co-sign

How do issuers of credit cards make money?

they charge interest on loans and charge fees

How are stocks bought?

through a broker who is paid a commission to buy and sell on behalf of customers

characteristics of stock

ticker symbol, stock exchange, current trade price/ amount change/ % change, previous close, day's range, 52 week range, volume, market cap, dividend, yield %

maturity

time at which payment to the bondholder is due

grace period

time between your purchase and the payment due date during which no interest is charged

Why do private companies go public?

to raise funds to expand, give limited liability to the owners, and unlimited life of the company

balance

total amount you currently owe

the three types of bonds are...

very low-risk (backed by the full faith and credit of the US government)

What do stock indexes help determine?

whether the market is experiencing a bull or bear market

What stock characteristic can be used to compare with other investments, such as bonds, etc.?

yield %