Review How are American Anti-Trust Laws an example of a mixed-market economy? What is an oligopoly? What is a conglomerate? What is the difference b/w a horizontal and vertical merger? How is a corporation able to raise more capital than a partnership, cooperative or sole proprietorship?
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Review How are American Anti-Trust Laws an example of a mixed-market economy? What is an oligopoly? What is a conglomerate? What is the difference b/w.
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Review
How are American Anti-Trust Laws an example of a mixed-market economy?
What is an oligopoly?What is a conglomerate?What is the difference b/w a horizontal and
vertical merger?How is a corporation able to raise more
capital than a partnership, cooperative or sole proprietorship?
Vocabulary
Currency- Coins and paper bills used to purchase goods/services.
Certificate of Deposit- Earns a higher interest rate than a savings/checking account but you are unable to have access to your money for a set period of time
Stocks- Ownership shares of a corporation that can be bought and sold
Fed- The national bank of the United States.
Warm Up
What does Stewie want so badly? Explain why.
EQ: EXPLAIN THE VARIOUS FUNCTIONS OF MONEY AND THE VARIOUS WAYS MONEY CAN BE SPENT, SAVED AND INVESTED?
Money and the Banking System
Why does money have value?
We are absolutely certain that someone else will accept its value as well. Medium of Exchange
Money can be exchanged for any good or service
Functions of Money
Medium of Exchange Barter System
People had to trade goods or services they possessed for goods or services they wanted
Very inconvenient This caused the creation of
money to use for a medium of exchange
Measure of Value Money assigns a value to a
good or service and can then be exchanged in the market place
• Store of Value
Types of Money
Coins: Metallic forms of money such as pennies, nickels, etc.
Currency: Both (coins and paper)
Spending, Borrowing, and Investment
Spending Money Checking Accounts
Called Demand Deposits because your money is available “on demand”
Used by writing a check or using a debit card
Credit Credit Cards act as a loan The purchaser is deferring
payment until a later date and must pay interest on the purchase
Certificate of Deposit (CD) Called Time Deposits because
you only have access to your money after a set amount of time
Earn a higher interest rate than a checking/savings account
Types of financial institutions
Demand Deposit and Time Deposit Accounts are usually held at either a commercial bank, credit union or savings and loan
1. Commercial Banks - Receive deposits of money, extend
credit, and provide loans- Banks make money on the interest
they collect from loans- Collateral
- Requirement to obtain a loan, collateral is anything of value that can be used to cover the cost of the loan if you don’t pay
2. Savings and Loans - Traditionally loaned money to people
buying homes
3. Credit Unions Open only to workers of a certain
group Can offer higher interest rates to its
customers
APR
APR (Annual Percentage Rate) Best indicator for the
cost of a loan Higher than the
interest rate because it also reflects the fees and other charges you have to pay to get the loan. Closing costs when
getting a mortgage The yearly cost for
borrowing $
Compound Interest
Compound Interest “Interest on Interest” You are charged a %
on the outstanding balance of the loan
…Could also work for you in a good way Accounts such as a
401K or IRA can compound interest in your favor
Stocks, Bonds, and Mutual Funds
Stocks Shares in a company that
an individual purchases giving that person part ownership
Can be very rewarding and very risky AFLAC and ENRON
Mutual Funds Helps minimize risk Pool money from many
investors to buy a range of stocks
Lower rate of return
Bonds Bought by individuals Loans to either a
company or government
Insurance
Insurance When you buy a stock
you are accepting the risk. Insurance involves transferring risk to others
Paying money to an insurance company so if what you value is lost or damaged the insurance company will pay for it
Life Insurance Provides money to one’s family
if they die Term Life Insurance Whole Life Insurance
Health/Medical Insurance Covers health and medical
expenses Liability Insurance
Provides protection from claims arising from injuries or damage to other people/property Homeowner, auto insurance
Comprehensive Liability Covers businesses from wide
range of catastrophes
Businesses and Investment
Capital Investment Investing profits in
capital to make the company more efficient
Pension Funds Mutual funds set up by
employers to allow employees to save for retirement
Employees pay into the fund and gain interest
Is Your Money Safe?
U.S. has one of the safest financial systems in the world.
FDIC- Federal Deposit Insurance Commission - Insures accounts of
up to $100,000- Created after Great
Depression
The Federal Reserve
Functions:1. Act as the gov’t
bank2. Conducting
Monetary Policy Controlling the supply
of money and the cost of borrowing money
Changing the Money Supply
The FED does this in 3 ways:1. Reserve Requirement2. Discount Rate3. Open Market
Operations
GRAPHIC ORGANIZER
EQ: EXPLAIN THE VARIOUS FUNCTIONS OF MONEY AND THE VARIOUS WAYS MONEY CAN BE SPENT, SAVED AND INVESTED?
Reflection
1. Explain “medium of exchange”2. Describe the inconvenience of the Barter System3. Why is a checking account called a “demand deposit”?4. Explain what a credit card company offer?5. Why might someone choose to put money in a Certificate of
Deposit?6. Summarize the differences between a Commercial Bank, Savings
and Loans, and Credit Unions.7. Describe why might someone choose to invest in a Mutual Fund?8. Explain the purpose of buying insurance?9. Evaluate the purpose of the FDIC?10. Explain the role played by the Federal Reserve in our economy?
Closing ?
What are the two ways a person can make money in the stock market?
Capital gain- Sell stock for more than you bought it
Dividend- Receive part of corporate profits based on how much stock you hold