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Money
anything that can be used to purchase goods & services
Paper money itself doesn’t hold much value, but people recognize it as something that can purchase goods and services
Wealth
accumulation of savings through the purchase of assets (using money) that occurs over time.
You’re acquiring your savings over time.
Financial Assets
written claims where buyers have the right to future income from sellers
Have different levels of liquidity!
Includes cash, demand deposits (checking accounts), loans, bonds, stocks, physical assets (land, homes, cars)
Loans
a thing that is borrowed, especially a sum of money that is expected to be paid back with interest.
Bonds
a fixed-income instrument and investment product where individuals lend money to a government or company at a certain interest rate for an amount of time.
Bonds are commonly issued by governments in order to take money for government projects and pay the loan back w/ interest.
Liquidity
how easily the asset can be converted into cash
Cash is the most liquid financial asset that we have.
Banks
Banks become a financial intermediary when a business owner can do business w/ a bank and acquire a loan for expanding their business.
So for the bank, the loan is an asset.
For the business owner, the loan is a liability.
Stocks
a share in the ownership of a company, including a claim on the company’s earnings and assets.
Mutual Funds
a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. (least risky)
Certificates of Deposit (CD’s)
an account that allows you to save money, typically at a fixed interest rate for a fixed amount of time.
Savings Account
the amount of money a bank or financial institution that pays on your deposits.
Commodities
a basic good used in commerce that is interchangeable with other goods of the same type. (most risky)
Fiat Money
a government-issued currency that is not backed by commodities such as gold or silver.
