Financial Chapter 1

The study of how societies and individuals allocate limited resources among competing, unlimited wants.

Sector 1: Raw Materials, aka primary sector: foundation of all economies, land, minerals, lumber, basic food.

Sector 2: Manufactured Goods, aka secondary sector: turns raw materials into finished products; manufacturing, processing, construction.

Sector 3: Services, aka the tertiary sector, svcs that facilitate the transfer of finished goods to end users in the economy & enhance consumers lives. Retail/wholesale sales, transport, distribution, entertainment, financial svcs, healthcare, law.

Sector 4: Intellectual Property, aka quaternary sector, intellectual concerns re gov't, culture, education, scientific research, info technology. Improve quality of life.

• 1. Standardized medium of exchange.
• 2. Standardized way to measure value (unit of account).
• 3. Store of value (money retains its value over time).

• 1. Households
• 2. Businesses
• 3. Governments
• 4. Financial Intermediaries

Local & National: Product (output) Markets, Labor Markets, Financial (capital) Markets

Global:Foreign Exchange Markets

In a circular pattern.

1. Depository Institutions.

2. Contractual Savings Institutions.

3. Investment Institutions.

• To help consumers, businesses and gov'ts save, borrow, invest, and otherwise manage money.
• To serve as intermediaries in the marketplace.
• To provide risk management and investment planning services.

• 1. Cash management and credit needs.
• 2. Asset accumulation needs.
• 3. Asset protection needs.
• 4. Asset distribution needs.

1. Checking Accounts, Share draft account, Money Market Deposit Account, Cash Management Account, Installment Credit, Non-installment credit.

2. Savings Account, Certificate of Deposit (CD), Mutual Fund, Brokerage Account, Deferred Annuity.

Life Insurance, Medical Ins., Disability income ins., Automobile Ins., Homeowners Ins., Liability Ins.

• Financial planning.
• Annuities.

The part of the environment that includes all of the elements affecting the production, distribution and consumption of goods & services.

A condition that must be satisfied by a product or service in order for individuals, businesses, and gov'ts to survive and function properly.

A desire for a particular product or service.

The study of how societies and individuals allocate limited resources among competing, unlimited wants.

A transaction in which one party gives something of value to another party and receives something of value in return.

A standardized method of making and receiving payments for goods & svcs.

In an economy, the monetary unit in which value is expressed. ie Dollar, Rupee, Euros.

Payments made by a gov't for which no goods or services are given in return.

The transfer of funds from savers to borrowers through the the services of a financial intermediary.

A market where businesses supply finished goods and services to households, other businesses, and governments.

A market where households offer their labor to businesses and governments in exchange for wages or other compensation.

A market in which money is transferred from savers to borrowers.

A market that converts currencies used by buyers into currencies acceptable to the sellers.

A diagram that illustrates the flow of funds through an economy.

A business that owns financial assets, such as stocks and bonds, rather than fixed assets, such as equipment and raw materials.

A financial institution that holds a special position of trust or confidence when handling the affairs of others, and who must put the interests of others ahead of its own interests.

A financial institution that specializes in accepting deposits and making loans.

A fee that individuals and financial institutions pay (or charge) for the use of borrowed money.

A financial institution that acquires funds at periodic intervals on a contractual basis.

A contractual savings institution that provides retirement funds for individuals covered by pension plans.

An arrangement under which a plan sponsor provides plan participants with a lifetime income benefit that begins at retirement.

A document or certificate that represents an ownership interest in a business (stock) or an obligation of indebtedness owed by a business, gov't or agency (bond).

A document or certificate that represents an ownership interest in a business (stock)

A document or certificate that represents an obligation of indebtedness owed by a business, gov't or agency (bond).

A financial instrument that consists of short term, unsecured promisory notes issued to busnes's or gov'ts, by corp.'s as an alternitive to short term bank loans or other forms of borrowing.

An investment co. that pools the funds of customers and uses the funds to buy stocks, bonds and other financial instruments.

the ease with which an asset can be converted to cash for an approximation of its value.

a product that enables customers to increase the amount and/or value of their assets over time.

the share of a co's profits payable to owners of teh co's stock.

an increase in the value of invested assets.

the possibility that results will be different than expected; generally associated with the possibility of loss.

From an individual investor's perspective, that individuals comfort level with risk.

payment for services rendered; usually calculated as a %age of the transaction amount.

a product that protects owners against the risk of financial loss from unforseen events such as natural disasters, theft, accidents, illnesses, and death.

A mechanism for transferring some or all of the risk of a financial loss from an individual or entity to an insurance co.