Student Unit 4 - Financial Sector
Welcome and Important Dates
Test Date: Friday, 3/7
Additional Information: Pick up handouts and a Chromebook.
Class Dates: Tuesday 2/18 and Wednesday 2/19.
Warm Up Questions
What components make up the financial system?
What are financial assets?
What does liquidity mean?
Unit 3 Test Information
Access: Unit 3 Tests available in PowerSchool.
Corrections and Retakes:
70-79% Score: Can do corrections. Must inform the teacher to access them and correct all missed questions.
69% or Below: Can do remediation and retake to improve the score. Must turn in corrections before the next unit (due Thursday, 3/6).
Overview of Financial Assets and the Financial System
4.1 Financial System Basics
Wealth: Current and accumulated savings.
Financial Asset: A paper claim entitling you to future income (e.g., stocks, bonds, CDs).
Physical Asset: A claim on tangible objects (e.g., house, car).
Liability: Requirement to pay money in the future.
4.2 Tasks of the Financial System
Transaction Costs: Reduces costs of planning and resolving disputes.
Risk Reduction: Enables diversification of investments to minimize losses.
Providing Liquidity: Ensures cash availability for unforeseen expenses.
What Are Financial Assets?
Definition: Resources convertible to cash.
Real Assets: Physical items (e.g., commodities, real estate).
Intangible Assets: Non-physical properties (e.g., patents).
Financial Assets: Include currency and investments (stocks, bonds).
Common Financial Assets: Cash and bank deposits like checking and savings accounts.
Liquid and Non-Liquid Assets
Liquidity: Ease of converting assets to cash.
Liquid Investments: Higher liquidity generally means a lower return on investment (ROI).
Securities: Readily traded financial assets on stock markets (e.g., stocks, bonds).
Non-Liquid Assets: Real and intangible assets cannot be quickly converted to cash.
Bonds Specifics
Definition: A form of loan to a firm or government with lower transaction costs and easy resale.
Inverse Relationship: bond values decrease when interest rates increase.
Default Risk: Occurs when payments on loans or bonds are not made.
Financial Intermediaries
Types of Intermediaries:
Mutual Funds: Pool money to buy shares.
Pension Funds: Invest for retirement.
Insurance Companies: Provide benefits to beneficiaries.
Banks: Facilitate liquidity between lenders and borrowers.
Fractional Reserve Banking: Banks keep only a portion of deposits available for withdrawal.
Economies Overview
Open vs. Closed Economy
Open Economy: Engages actively in international trade (e.g., US, Singapore).
Closed Economy: Minimal global trade (e.g., North Korea).
Link Between Savings and Spending
Savings: Source of funding for loans; essential for economic growth.
Consumer Disposable Income: Total income minus taxes and transfers; influences savings possibility.
Budget Balance and National Savings Relationship
National Savings: Total savings within the economy, derived from private and government savings.
In Closed Economy: National savings equal investment spending.
Whiteboard Practice Warm Ups
Example Problem: Calculating Sprivate, Sgovernment, national savings, and investment spending based on provided data.
Types of Interest Rates
Nominal vs. Real Interest Rates: Understand the importance of adjusting rates for inflation to accurately represent returns.
The Demand for Money
Liquidity's Role: Connection between liquidity, interest rates, and overall economic decision-making.
Summary of Key Terms and Concepts
The Credit System: Importance of credit scores, types of credit, and management to facilitate borrowing and financing investments.
Fiscal and Monetary Policy: Distinguish between governmental fiscal actions and central bank interventions to maintain economic balances.
Practice Problems and Activities
Various activities including financial calculations, whiteboard discussions, and graphing economic principles.