Money
What is a barter system? Give an example.
Goods/services are exchanged instead of money. Ex: I give my friend hot cheetoes in exchange for carrying my bag to class.
What is a mortgage for?
A mortgage is a specific type of loan that is used to purchase real estate.
What makes an asset "non-liquid"? Give an example.
An asset is non-liquid if it cannot be quickly converted to cash without a significant loss in value, such as real estate or collectibles. Ex: real estate
What is currency?
coins and paper bills used as money
What is interest?
the price paid for the use of borrowed money
What is representative money? Give an example.
Something (normally paper currency) can be exchanged for something else (normally precious metal). Like an IOU note
What is near money?
Financial assets that can quickly be converted to cash but are not cash themselves. Ex: savings accounts, Treasury bills, or CDs. They are called "near" money because they are close to being as liquid as cash but require a conversion process.
What is the coupon rate?
interest rate that a bond issuer will pay a bondholder
How do banks make money?
providing and earning interest from loans
Is a savings account high or low risk and why?
A savings account is considered low risk because it is insured by the FDIC, providing safety for deposits.
What is fiat money, and how does it work?
Government issued currency that has value because the government SAYS it does. Ex, $10 is $10 because the government says so.
Define liquid assets and give examples.
Liquid assets are easily convertible to cash. Examples include cash, checking accounts, and stocks.
What are municipal bonds?
Municipal bonds are used for local projects (ex: police stations) due to their tax-exempt status and local government backing.
Explain how mutual funds work.
Mutual funds pool money from many investors to buy a diversified portfolio of stocks, bonds, or other securities, managed by professionals.
Why do stock brokers check the Dow Jones Industrial Average?
Stock brokers check the Dow Jones to gauge market trends, as it reflects the performance of major companies and the overall economy.
Why are gold coins better than bars?
Coins are more PORTABLE
What is the purpose of the Federal Deposit Insurance Corporation (FDIC)?
The Federal Deposit Insurance Corporation (FDIC) protects depositors in U.S. banks by insuring deposits up to $250,000 per account.
What are junk bonds, and are they high or low risk?
Junk bonds are risky assets but due to their high risk, they come with returns that are higher than safer, investment-grade bonds.
What is diversification in investing and why is it considered beneficial?
Diversification in investing involves spreading investments across various assets to reduce risk to investors.
Why can it be better to invest money in the stock market rather than put it into a savings account?
Investing in the stock market can yield higher returns over time compared to the low interest of savings accounts, despite higher risks.
Compare and contrast shells versus coins as forms of currency.
Coins can be can be minted in various denominations (DIVISIBILITY), making transactions smoother and more efficient.
When people lose confidence in money, what does it lose?
ACCEPTABILITY. This leads to inflation, hoarding, or a shift to alternative currencies, which can destabilize the economy.
What happens when you use a credit card?
The credit card issuer (capital one, visa, etc.) pays the store. The money is NOT immediately deducted from your account.
What makes money market mutual funds higher risk than investing in a CD?
Money market funds are not insured by the FDIC.
What should you do if you want to start investing money in the stock market?
contact a brokerage firm, who will put you in touch with a stockbroker.