Chapter 11: Financial Markets

savings

income not used for consumption, not spent on immediate wants

invstment

the use of income today in a way that allows for a future benefit

economic investment

money lent to businesses

personal investment

the act of individuals putting their savings into financial assets

financial system

consists of institutions such as banks, insurance markets, bond markets, and stock markets, allows for this transfer of funds between savers and investors

financial asset

claim on the property of the borrower

financial market

a situation in which buyers and sellers exchange particular types of financial assets

financial intermediary

a financial institution that collects funds form savers and then invests these funds in loans and other financial assets

mutual fund

a pool of money managed by an investment company that gathers money from individual investors and purchases a range of financial assets

capital market

the market for buying and selling long-term financial assets

money market

the market for buying and selling short-term financial assets

primary market

market for buying newly created financial assets directly form the issuing entity

secondary market

the market where financial assets are resold

investment objective

a financial goal that an investor uses to determine if an investment is appropriate

risk

the possibility for loss on an investment

return

the profit or loss made on an investment

diversification

the practice of distributing investments among different financial assets to maximize return and limit risk

stock exchange

a secondary market where securities (stocks and bonds) are bought and sold

capital gains

gains made from the sale of securities (stocks and bonds)

common stock

share of ownership in a corporation giving holders voting rights and a share of the stock

preferred stock

share of ownership in a corporation giving holders a share of profits but no voting rights

stockbroker

an agent who is paid a commission for buying and selling securities on behalf of customers.

future

a contract to buy or sell a commodity at a specified future date and price

option

contract that gives the right, but no the obligation, to buy or sell

stock index

a measure of the change in prices for a specific set of stocks

bull market

when stock prices rise steadily

bear market

when stock prices is a steady decline