Econ. Ch. 11 Flashcards
Investment
The act of redirecting resources from being consumed today so that they may create benefits in the future.
Financial system
The network of structures and mechanisms that allow the transfer of money between savers and borrowers
Financial assets
A claim on the property or income of a borrower
Intermediaried
An institution that helps channel funds from savers to borrowers
Mutual funds
An organization that pools the savings of many individuals and invests this money in a variety of stocks, bonds/
Diversification
The strategy of spreading out investments to reduce risk
Portfolio
The collection of financial assets.
Bonds
Bonds are amounts of money given to the government and interest rates are given back to the bond holder when the bond matures.
Coupon rate
The interest rate that bond issuers will pay bond holders.
Par value
A bond’s stated value, to be paid to the bondholder at maturity.
Yield
The annual rate of return on a bond if the bond is held to maturity.
Bond ratings
AAA-------> Low risk AA A BBB BB B CCC CC C D------------> Very high risk
Types of bonds
Savings bonds- a low risk bond issued by the United States government
Treasury bonds- Ussued by the Treasury department
Municipal bonds- a bond issued by a state or local government or firm to finance a public project
Corporate bonds-a bond issued a corporation to help raise money for expansion
Junk bonds- a bond with high risk and potentially high yield
Stock
Raise money by owning companies shares.
Dividend
Are portions of of a corporations profit, the higher the corporate profit the higher the dividend.
