4.1: Financial Assets

Question 1

Financial Sector

Examples

Answer 1

Institutions that link lenders and borrowers

Banks, mutual funds, pension fund, other financial intermediaries

Question 2

Asset

Answer 2

Anything tangible or intangible that has value

Question 3

Interest Rate

AKA

Answer 3

The amount a lender charges for borrowing money

The price of a loan

Question 4

Interest-bearing Assets

Example

Answer 4

Assets that earn interest over time

Bond

Question 5

What does a low interest rate do?

Answer 5

Increases investment

Question 6

The three types of risks

Answer 6

Market risk, default risk, inflation risk

Question 7

Market Risk

Answer 7

Losing money from changes in market price

Question 8

Default Risk

Answer 8

When companies or individuals are unable to fulfill their debt obligations

Question 9

Inflation Risk

Answer 9

The value of your investment shrinks from inflation

Question 10

Liquidity

Answer 10

How easily an asset can be converted to a medium of exchange. The higher the liquidity, the lower the rate of return

Question 11

Bonds (Securities)

Answer 11

Loans that represent debt that must be repaid to the lender

Question 12

Stocks (equities)

Answer 12

A portion of a company’s profit paid out as dividends to a stockholder

Question 13

The point

Answer 13

Bond price and interest rates are inversely related