G. Investments and Interest Rates Flashcards
Describe and explain the role of money, banking, and savings in everyday life.
Money:
Money is an efficient medium of exchanging goods and carrying out transactions. It eliminates the need for barter systems.
Money provides a standard measure of value, allowing individuals to compare the prices of different goods and services easily.
Money preserves its value over time, which allows you to store your wealth for future use.
Banking:
Banks offer a secure place for individuals to deposit their money and reduces the risk of it getting stolen if your money is kept at home.
There are multiple ways of carrying out transactions such as through physical cash, cards, checks, online transfers, etc.
Banks play a pivotal role in providing credit and loans, enabling individuals to make significant purchases, invest, or handle unexpected expenses.
Savings:
Savings can serve as a backup financial asset to help you through these cases and it can reduce your reliance on external entities. during difficult times.
Interest and Growth: By saving money in interest-bearing accounts or investments, individuals can earn interest, allowing their wealth to grow over time. This helps combat the impact of inflation and increases overall financial well-being.
Future Planning: Savings play a crucial role in long-term financial planning. Whether for education, homeownership, retirement, or other goals, accumulating savings is essential for achieving financial objectives.
Interpret stock market purpose and function and analyze stock market performance.
The stock market serves as a centralized platform where buyers and sellers can trade shares of publicly listed companies.
Companies issue out shares so they can raise money on various endeavors like expansion, research, development, etc. People who buy these shares (investors) can get ownership of a percentage of the company which gives money to the company.
Investors can have a diverse portfolio in order to get capital gains and assets through dividends (a sum of money paid regularly in intervals (usually quarterly) by a company to its shareholders out of its profits or reserves) and capital appreciation (if a stock increases in value from the point of purchase).
Stock prices (and by extension, a company’s perceived value) are determined by the supply and demand for shares. The constant buying and selling in the market contributes to price discovery.
The stock market provides liquidity, allowing investors to buy or sell shares easily. Liquidity enables transactions to be done efficiently; in the case of the stock market, investors can convert their investments into cash quickly.
Shareholders can have a say in the company’s board through voting rights associated with their shares since their shares grant them some ownership of the company. This provides a mechanism for corporate accountability and oversight.
Elements to consider when analyzing Stock Market Performance:
Indices:
Stock market indices, such as the S&P 500 or Dow Jones Industrial Average, track the performance of a basket of stocks. They provide an overall snapshot of market trends.
Market Trends:
Trends in the market, such as bull (rising) or bear (falling) markets, impact investment strategies. Technical analysis and chart patterns help identify trends and potential turning points.
Economic Indicators:
Economic factors, including GDP growth, employment rates, and inflation, influence stock market performance. Positive economic indicators often correlate with a robust stock market.
Company Earnings and Performance:
Individual companies’ financial health and earnings reports affect their stock prices. Investors analyze company fundamentals, such as revenue, earnings, and debt levels, to make informed investment decisions.
Global Events:
Global events, geopolitical developments, and macroeconomic trends can impact stock markets. Changes in interest rates, trade policies, or geopolitical tensions may lead to market fluctuations.
Risk and Volatility:
Risk and volatility are inherent in the stock market. Investors assess their risk tolerance and the volatility of individual stocks or the overall market to make strategic investment decisions.
Dividends and Yield:
Dividend payments and dividend yield are crucial for income-focused investors. Companies that regularly pay dividends may be attractive to those seeking a steady income stream.
Market Sentiment:
Investor sentiment, reflected in news, social media, and surveys, can influence market movements. Extreme optimism or pessimism may signal potential turning points.
Successful analysis involves a comprehensive approach, considering both quantitative and qualitative factors. Investors often use a combination of technical analysis, fundamental analysis, and macroeconomic insights to make informed decisions in the dynamic stock market environment.
Explain how interest rates are determined by market forces that influence the
amount of borrowing and saving done by investors, consumers, and
government officials.
