BELL RINGER 04.14.2015Write complete question and answer on your Bell Ringer form.

Describe your first

attempts at saving

money. How did you

do it? What were you

saving for? How long

did it take to reach

your goal?

ECONOMICSApril 14, 2015

Chapter 11: Financial Markets

Section 11.1: Saving and Investing

INVESTING AND FREE

ENTERPRISE

Investment takes resources that normally

would have been consumed and redirects

them to create profits and/or benefits in the

future.

Investment promotes economic growth and

contributes to a nation’s wealth.

11.1

THE FINANCIAL SYSTEM

Our economy needs a financial system in

order for investment to take place.

This system allows money to be transferred

between savers and borrowers.

When you save, you are really loaning

money to someone else (the bank or an

individual).

11.1

THE FINANCIAL SYSTEM

Documents for savings accounts, C.D.s, or

bonds represent financial assets, or

sources of money that could be liquidated

or seized in order to pay debts.

Money flows from savers or investors

through a financial institution to borrowers.

11.1

FINANCIAL INTERMEDIARIES

Financial intermediaries are the “go-

betweens” that create a path from the

savers to the borrowers, and they include

banks, savings and loan associations,

credit unions, finance companies, mutual

funds, life insurance companies, and

pension funds.

11.1

FINANCIAL INTERMEDIARIES

While some invest money directly into

businesses (stocks), other prefer to lessen

the risk by using the more conservative

means of growing wealth listed as

intermediaries, which lessen the risk of

investment by diversification.

11.1

FINANCIAL INTERMEDIARIES

A collection of stocks gathered together as

investments for a mutual fund or an

individual is known as a portfolio.

The information intermediaries provide

potential investors or savers is called a

prospectus.

11.1

FINANCIAL INTERMEDIARIES

Financial intermediaries provide investors

or savers with liquidity (changing an asset

into cash).

This can be an attractive feature of one

intermediary over another.

11.1

RISK, LIQUIDITY, AND RETURN

Return is the money received after an

investment or a savings account pays off.

A higher interest rate can be earned if you

give up a degree of liquidity.

In other words, return increases as liquidity

decreases.

11.1

RISK, LIQUIDITY, AND RETURN

A higher return can also be expected when

the risk of losing your investment goes up.

Return increases as risk increases.

This works both in expectations in investing

and in loaning money.

11.1

CHECK QUESTION 11.1

Write complete question and answer on your Bell Ringer form.

Your friend Bill offers to pay you

interest if you loan him money to buy

concert tickets. What things do you

consider before deciding on how much

interest to charge Bill?