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 %