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Economics 51109 http:students.resa.netmilewski

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'The New York Stock Exchange generates the capital that makes capitalism work. ... questions on film the New York Stock Exchange. Economics 5/13/09 ... – PowerPoint PPT presentation

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Title: Economics 51109 http:students.resa.netmilewski


1
Economics 5/11/09 http//students.resa.net/milews
ki
  • OBJECTIVE Demonstration of Chapter11 and begin
    examination of the circular flow.
  • I. Administrative Stuff
  • -attendance
  • -distribution of test
  • II. Chapter11 Test
  • III. Journal 29 pt.A
  • -Read the Business Week Newsclip p.306
  • -Answer questions (1-2) p.306
  • IV. Journal 29 pt.B
  • -notes on savings investing

2
Capital
  • The New York Stock Exchange generates the
    capital that makes capitalism work.
  • Capital the equipment, tools, and machinery
    used in the production process.
  • Financial Capital - savings
  • Saving absence of spending
  • Savings dollars that become available when
    people abstain from consumption

3
The Financial System
  • It is a network of savers, investors, financial
    institutions that work together to transfer
    savings to investors.
  • This results in the circular flow, which is the
    way funds are transferred from savers to
    borrowers.

4
As a saver you are
  • Categorized as a household and can save the
    following ways
  • 1.) Open a savings account
  • 2.) Buy a CD (certificate of deposit) which is a
    receipt showing that an investor has made an
    interest bearing loan to a bank
  • 3.) Buy a bond from the government or corporation
    in which you receive a receipt for the funds you
    loaned them.

5
Receipts
  • Are the claims on the property and the income of
    the borrower.
  • They are assets because they are property that
    has value.
  • It specifies how much was loaned, for how long,
    and the terms (interest rate) in which the loan
    was made.

6
Circular Flow
7
Circular Flow
  • A circular flow takes place when funds are
    transferred from savers to borrowers
  • i.e. Banks (Savings banks, credit unions,
    commercial banks, and savings associations)
    obtain funds when their customers or members make
    regular deposits.

8
Economics 5/12/09 http//students.resa.net/milews
ki
  • OBJECTIVE Examine the Role of Banks.
  • I. Administrative Stuff
  • -Attendance
  • II. Modern Marvels NYSE
  • -questions on film the New York Stock Exchange

9
Economics 5/13/09http//students.resa.net/milewsk
i
  • OBJECTIVE Examine investment strategies and
    financial assets.
  • I. Journal 30 pt.A
  • -Read Business Week Newsclip p.327
  • -Answer questions (1-2) p.327
  • II. Return of Chapter11 Test
  • III. Journal 30 pt.B
  • -notes on types of investments

10
Risk
  • Risk a situation in which the outcome is not
    certain, but probabilities for each outcome can
    be estimated.
  • Low risk low return on investment, high degree
    of safety
  • High risk possibility of high return, little
    degree of safety

11
p. 319
12
Bonds
  • Bonds are long term obligations that pay a
    defined interest rate for a specific number of
    years
  • The 3 components of a Bond
  • coupon the interest rate
  • maturity the length of time
  • par value the amount borrowed (MUST be repaid
    when the bond matures)

13
Example of a Bond
  • You have 1000 to invest. The Milewski
    Corporation is offering a ten year bond at a 10
    interest rate paid annually. If you decide to
    invest in the Milewski Corp. today, what is the
    coupon, maturity, and par value on the bond you
    purchase?
  • Coupon
  • 10 or .10
  • Maturity
  • 5/13/2019
  • Par value
  • 1000.00
  • Annual Interest Paid
  • 100.00

14
Was it a good investment?
  • To determine if you made a good investment you
    should
  • 1.) Determine the bond yield
  • annual interest / purchase price current yield
  • 100.00 / 1000.00 .10
  • 2.) Check the Bond Rating
  • 3.) Compare it to other similar bonds

15
Organized Stock Exchanges
  • NYSE oldest, largest, and most prestigious in
    the U.S. Located on Wall Street in NYC
  • AMEX smaller stocks, those who cant quite make
    it to the NYSE are traded here. (the JV team)
    Also located in NYC
  • Regional Stock Exchanges originally listed
    small companies and new companies. Now, they
    trade local stocks and better meets the needs of
    smaller companies. Located in Chicago, Pacific,
    Philadelphia, Boston, and Memphis

16
Over-the-Counter Market
  • OTC most stocks in the U.S. are not traded on
    organized exchanges. They are traded
    electronically using NASDAQ
  • NASDAQ National Association of Securities
    Dealers Automated Quotation
  • Few OTC stocks pay dividends. Most are small and
    new companies

17
Bull v. Bear
  • Bull market when stocks are strong and stock
    prices are rising
  • Bear Market when stock prices are falling

18
Economics 5/14/09http//students.resa.net/milewsk
i
  • OBJECTIVE Examine investment strategies and
    financial assets.
  • I. Administrative Stuff
  • -Attendance
  • -Progress Reports
  • II. Journal 31 pt.A
  • -Read The Global Economy p.323
  • -Answer questions (1-2) p.323
  • III. Journal 31 pt.B
  • -notes on market investment strategies

19
Measuring the Market
  • Question How do you know if stock market is a
    bull or a bear?
  • Dow Jones Industrial Average (the Dow) the
    average of 30 stocks traded on the NYSE
  • SP 500 uses the movement of 500 stocks traded
    to determine an index number which shows the
    direction of the market

20
Futures Trading
  • Spot you pay the price something is worth today
  • Futures contract you buy at todays price and
    you sell at a specific date in the future at
    todays price, regardless of the market price at
    the time of sale.
  • Example You buy 1 oz of gold at todays price
    You also agree to sell that gold at todays price
    to your friend six months from today. If gold
    six months from now is lower, you make money. If
    the price of gold is higher, you lose money.

21
Futures Market
  • Where futures contracts are bought and sold.
  • Most are associated with livestock and farm
    products.
  • Futures markets are located in NYC, Chicago,
    Kansas City.

22
Options Markets
  • Call option the right to buy the share of stock
    at a specific date and price in the future.
  • Put option the right to sell a share of stock
    at a specific date and price in the future.

23
Nonbank financial institutions
  • Another important group of financial
    intermediaries includes
  • nonbank financial institutionsnondepository
    institutions that channel savings to borrowers.
  • Finance companies, life insurance companies,
    pension funds, and real estate investment trusts
    are examples of nonbank financial institutions.

24
Finance Companies
  • finance company - a firm that specializes in
    making loans directly to consumers and in buying
    installment contracts from merchants who sell
    goods on credit.
  • Some finance companies make loans directly to
    consumers.
  • Because they make some risky loans, and because
    they pay more for the funds they borrow, finance
    companies charge more than commercial banks for
    loans.

25
Life Insurance Companies
  • A financial institution that does not get its
    funds through deposits
  • The head of a family, for example, purchases a
    life insurance policy to leave money for a spouse
    and children in case of his or her death.

26
Life Insurance Companies
  • premium - the price the insured pays for this
    policy and is usually paid monthly, quarterly, or
    annually for the length of the protection.
  • Because insurance companies collect cash on a
    regular basis, they often lend surplus funds to
    others.

27
Mutual Funds
  • mutual fund - a company that sells stock in
    itself to individual investors and then invests
    the money it receives in stocks and bonds issued
    by other corporations.
  • Mutual funds allow people to play the market
    without risking all they have in one or a few
    companies.
  • net asset value (NAV)the net value of the mutual
    fund divided by the number of shares issued by
    the mutual fundis the market value of a mutual
    fund share.

28
Pension Funds
  • pension - a regular payment intended to provide
    income security to someone who has worked a
    certain number of years, reached a certain age,
    or suffered a certain kind of injury.
  • pension fund - a fund set up to collect income
    and disburse payments to those persons eligible
    for retirement, old-age, or disability benefits.

29
Pension Funds
  • During the 30- to 40-year lag between the time
    the savings are deposited and the time the
    workers generally use them, the money is usually
    invested in corporate stocks and bonds.

30
Real Estate Investment Trusts
  • real estate investment trust (REIT) a company
    organized primarily to make loans to construction
    companies that build homes.

31
Economics 5/15/09http//students.resa.net/milewsk
i
  • OBJECTIVE Examine investment strategies and
    financial assets.
  • I. Journal 32 pt.A
  • -Examine 12.2 p.319
  • -Answer the caption question on p.319
  • -Examine Figure 12.5 p.322
  • -Answer the caption question on p. 322
  • II. Journal 32 pt.B
  • -notes on markets
  • III. Mindjogger
  • -video quiz on Chapter12 Financial Markets

32
Types of Markets
  • Capital market where money is loaned for more
    than one year.
  • Money market where money is loaned for less
    than one year.
  • Primary market a market where only the original
    issuer can repurchase or redeem a financial
    asset.
  • Secondary market is a market in which existing
    financial assets can be resold.
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