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What is Money?

What is Money?. Accounting Measure Standard of Value Legal Tender Financial Exchange Purchasing Power. What Role Does Money Play in the Economy?. The economy’s job is to try to respond to these needs and wants with goods and services. Supply and Demand. Demand (D). Supply (S).

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What is Money?

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  1. What is Money? • Accounting Measure • Standard of Value • Legal Tender • Financial Exchange • Purchasing Power

  2. What Role Does Money Play in the Economy? The economy’s job is to try to respond to these needs and wants with goods and services

  3. Supply and Demand Demand (D) Supply (S) How much of something is available Price decreases when supply increases The greater the supply, the lower the value • How much of something people want • Price increases when demand increases • If more people want something, they will pay more for it

  4. The Supply and Demand Balance Supply Demand Price

  5. Supply and Demand The market price at which the supply of an item equals the quantity demanded Equilibrium Price

  6. What Would Happen if We Didn’t Have Money? Barter Economy • Trading goods and services between two or more parties without the use of money

  7. What Would Happen if We Didn’t Have Money? Barter Economy Advantages Disadvantages Time and work Difficult to “buy” small things • Benefits countries and companies • Exchanging goods and services rather than cash • Enables those that are lacking hard currency to obtain goods and services

  8. Personal Finance • Savers in your community • Businesses • Households • Checking Accounts • Savings Accounts • CDs

  9. Personal Finance Checking Accounts Savings Accounts Certificate of Deposit • Pay bills • Earn interest • Debit card • Deposit/Withdraw money • Deposit/Withdraw money • Earn interest (higher rate than checking) • Fixed interest rate • Term limit • Cannot be withdrawn until maturity

  10. Personal Finance • Why does an individual borrow money? • College • Buy a home • Buy a car • Borrowers in your community • Individuals • Governments

  11. Personal Finance U.S. Savings Bonds Mutual Funds Stock Market • Pays a fixed rate of interest over a fixed period of time • Not subject to state or local income taxes • One of the safest types of investments • A collection of stocks and/or bonds • Gives small investors access to a well managed, diversified portfolio • Where an individual can buy and sell stocks on different exchanges • The more risk, the higher the reward

  12. How Long Will it Take You to Become a Millionaire? Annual Investment • Write down how much money you would like to save each year • Savings Account • CDs • Money Market Account • U.S. Bonds • Mutual Funds • Stock Market Select one savings plan to put your money in:

  13. What is the Role of Banks? Store and Lend Money • Financial Intermediation • An institution (bank) that acts as the middleman between investors and firms raising funds • Facilitates the flow of money • Process of transferring funds through financial institutions Investors Firms

  14. The Relationship Between Savers and Borrowers • Rate the bank paysan individual for saving with them • Rate the bank charges an individual to borrow money Interest Rate

  15. Why do Financial Markets Exist? • Encourages the interaction between savers/investors and companies/governments • Made up of financial instruments (stocks and bonds) • Very liquid – the quicker that something can be converted to cash, the more liquid it is

  16. Where are Financial Assets Traded? Physical Exchange • Physical Exchange • The world’s largest exchange • An exchange floor where stock transactions are completed The New York Stock Exchange

  17. Where are Financial Assets Traded? Electronic Exchange • Electronic Exchange • Exchange where approximately 3,300 companies trade • Most technologystocks are traded National Association of Securities Dealers Automated Quotations System

  18. Domestic Versus International Markets Domestic Markets A company does business within a specific country

  19. Domestic Versus International Markets International Markets A company does business outside their own country

  20. Primary vs. Secondary Markets • Primary Market • Secondary Market • Initial Public Offering (IPO) • First timea company issues stock • Trading of securities afterthey are issued • Includes:

  21. What Factors Affect Financial Markets? Actions of Issuers and Investors Government Actions International Events Economic Conditions

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