Chapter 2: 'Saving and Borrowing'

Question 1

What is the role of Banks?

Answer 1

• Savers deposit money, bank pays intrest
• Lend money to borrowers through loans, charge intrest
• Overdraft types of loan, banks can demand repayment immediately

Question 2

What is Equity?

Answer 2

• Shares (represents ownership)
• Businesses raise money by selling shares
• Holders of shares own part of the company
• It is a way of start up companies getting money
• Big companies sell large quantities of shares in IPO’s
• No set repayment date
• No interest

Question 3

What are Bonds?

Answer 3

• Borrowers issue IOU’s (a bond)
• Doesn’t go through banks
• Issued directly to investors - set repayment date
• Money must be paid back with intrest
• No ownership

Question 4

What are savers?

Answer 4

• Individuals with surplus money

Question 5

What are borrowers?

Answer 5

• Companies or individuals looking for finance

Question 6

What is the link between Risk and Reward?

Answer 6

• High risk = High Reward

Question 7

What is Insurance?

Answer 7

• Risk management
• Safety net
• Reinsurance - insurance for insurers