Financial Systems

"Financial System"

• A period of time during which stock prices are falling
• A period of time during which stock prices are rising
• The network of structures that allows for the transfer of money between savers and borrowers
• Making high-risk investments with borrowed money

When it comes to investments in general, the higher the ____ the higher the potential reward.

• Security
• Cost
• Risk
• Damage

Bonds, certificates of deposits, and other documents that show that borrowing has taken place and that there is a claim on the income and assets of the borrower.

• Savings
• financial assets
• Checking Accounts
• Financial Intermediary

Investors can buy these from firms or the government. They are repaid on a set date with a set interest rate.

• Financial Intermediaries

• Mutual Funds

• Stocks

• Bonds

These include institutions such as pension funds, life insurance companies, and banks.

• Financial Intermediaries

• Mutual Funds

• Stocks

• Bonds

People who own these have part ownership of the firm, which means they receive some of its profits, or losses.

• Financial Intermediaries

• Mutual Funds

• Stocks

• Bonds

These portfolios of investments allow small investors to diversify. They can include a variety of financial assets.

• Financial Intermediaries

• Mutual Funds

• Stocks

• Bonds

Stock prices

• always reflect all publicly available information.

• act predictably, not randomly

• reflect expectations about the future, but can often behave irrationally

• decrease in the long run

A shareholder can make money by

• selling his/her shares of stock for a profit

• receiving payouts from the company in the form of dividends.

• by both selling his/her shares of stock for a profit and receiving payouts from the company in the form of dividends.

• None of these

All of the following are functions of the financial system EXCEPT

• reducing transaction costs.

• reducing financial risk.

• reducing liability.

• providing liquidity