The Financial System

Financial markets are where people invest their accumulated ​ (a)   , or ​ (b)   .

• savings
• wealth
• financial assets
• physical assets
• liability
• income
• invest

Most investments are ​ (a)   , meaning the buyer gets future ​ (b)   from the seller.

• financial assets
• income
• physical assets
• liability
• invest
• wealth

 People can also invest in ​ (a)   , such as a house or machinery.

• physical assets
• liability
• invest
• wealth
• financial assets
• income

A ​ (a)   is a requirement to pay someone in the future

• liability
• invest
• wealth
• financial assets
• income

Match the following

• These are the costs of negotiating and executing a legal deal.

• Reduce Transaction Costs

• People are more willing to make investments if risk is minimized.

• Provide Liquidity

• Liquid investments can be easily turned into cash without a loss.  Illiquid investments cannot.

• Reduce Financial Risk

Match the following

• Bondholders loan money to a firm (or government) and are repaid with interest on a specified date.

• Bonds

• Money given to another in return for future payment with interest.

• Stocks

• Includes checking, savings, and money market accounts.

• Bank Deposits

• Stockholders have part ownership of the company and its profits.

• Loans

​ (a)   create a diversified financial portfolio and resells ​ (b)   of the portfolio to investors.

• Mutual Funds
• shares
• Pension Funds
• Life Insurance
• Banks
• retirement
• investment

​ (a)   are similar to a mutual fund, and provide ​ (b)   income.

• Pension Funds
• retirement
• Life Insurance
• Banks
• investment
• Mutual Funds

​ (a)   guarantees payment to a client’s beneficiaries upon death.

• Life Insurance
• Banks
• investment
• Mutual Funds
• Pension Funds

Why does a stock have value?

• Because of it's ability to generate future income.

• Creates a diversified financial portfolio and resells shares of the portfolio to investors.

• Is similar to a mutual fund, and provides retirement income.

• Guarantees payment to a client’s beneficiaries upon death.