Introduction Flashcards
why do people save and invest
consumption in the future (to smooth spending)
retirement
childrens’ education
insurance (Sharing risk)
what are the two periods in life where dissaving is high
youth
retirement
what is the period in life when saving is high
middle
what does DB stand for
defined benefit
what is a defined benefit pension
companies pay a fixed amount of salary to you in retirement
why did defined benefit pensions begin to go out of fashion
people started to live much longer and then companies has these massive liabilities to pay all of their retirees
what does dc stand for
defined contribution
what is a defined contribution pension
the person themselves decides how much of their salary to put into their retirement fun
you can contribute tax free (from gross salary)
why are defined contribution pensions less risky to the compnay
risk shifts from the company to the individual, people are concerned for their own pensions
how much you should save now is based on your future liabilities
such as…
retirement plans
plans to buy a house
plans to send children to education
examples of real assets
land, building, machinary
examples of financial assets
stocks, bonds
examples of intangible assets
health, education
which are easier to transfer -> real assets or financial assets
financial
why do derivates exist
they can expand the world of trade and assets that you can trade eg weather for a farmer
two steps to investing
- specify options available and evalutate these through expected future risk and return
- specify how to choose amongst these options
what did the linear model of consumption assume
that natural resources were infinite and that the cost of waste and pollution were minimal
what type of consumption are we trying to promote now
circular production and consumption (renewable energy and re use of materials)
equation for the impact of people on nature
I = P * A * T
I = impact on natural resources
P = population
A = affluence (consumption per persion)
T = technology
new vision in trading sees
financial system is only as good as the environment it occurs in
sustainable purchases by corporates and responsible consumption by households
how does the financial system smooth spending
use asset to store wealth and transfer consumption to the future
what is the ecological ceiling in donut economy
levels of climate change and its effects that we must stay below
what is the social foundation in donut economy
the levels of food, water, energy, income, peace, equality etc we must stay above
ie no child labour, no slave labour and so on
what is the sweet spot for the donut economy
above social foundations but below ecological ceilings
main functions of financial system
- money used as currency for exchange of goods and services
- savers and borrowers are linked, savings are pooled and mobilised
- produce information about possible investments and allocate capital
- consumption is smoothed
- monitor investments for transparency and accountability
- facilitate trading
what does it mean if an investor is bullish
they think a share will go up in price
what does it mean if an investor is bearish
believes prices will go down
what does it mean if a central bank is hawkish
expected to raise or not cut interest rates
what does it mean if a central bank are dovish
are expected to cut interest rates or not raise them
