This website uses cookies to ensure you have the best experience. Learn more

Saving, Investment, And The Financial System

1223 words - 5 pages

Chapter twenty-six examines how the financial system in America works and analyzes its macroeconomic role. I plan to structure my summary similar to the way chapter twenty-six does. First by talking about different financial institutions and how they work in the U.S. economy. Then by breaking down saving and investment in the national income accounts. Lastly I will explain how government policies affect society’s allocation of resources by manipulating the interest rate.
The first thing chapter twenty-six does is explain what a financial system is and why they are needed. A financial system is defined in the book as a group of institutions in the economy that help to match one person’s ...view middle of the document...

The longer the term of the bond, the higher the interest rate and the more return the holder will receive for the bond. This is simply because more time is more high risk and time is money. If the holder of a bond needs a payment before the date of maturity then he has to sell his bond to a different holder. Borrowers also can default on their loans by declaring bankruptcy. In this case the holder of the bond is now holding a bond that is worthless. Borrowers that have a higher risk to default on their loans have to pay a higher interest rate. The higher the risk, the higher the return is for the holder of the bond if the borrower does not default on the loan. U.S. government bonds are low-risk and a safe way to save money. However, low-risk means lower interest rates and smaller returns. The last important characteristic of a bond is its tax treatment. Most bonds require the holder to pay a portion of interest in income taxes. However, with municipal bonds, the bond holder is not required to pay taxes with a portion of interest. These bonds are issued by local and state government and have lower returns than bonds issued by the federal government or corporations since they have a tax advantage. Buying stock is another way to save money. Stock represents ownership in a firm. Selling stock allows firms to raise money. The sale of stock to raise money is known as equity finance. The more stock purchased in firm, the greater claim to profits an individual has. Buying stock in a prosperous business can lead to a large claim of profits. Stock indexes are watched closely as indicators to see how profitable certain stock will be in the future.
Other types of financial institutions in the U.S. economy are financial intermediaries. Financial intermediaries allow savers to be able to indirectly provide funds to borrowers. This allows borrowers who would struggle to raise money by selling stock or bonds a better route to obtain more funding. The two main financial intermediaries are banks and mutual funds. Banks pay interest to people who deposit their money and charge slightly higher interest to people who need to borrow. Banks are also important because they provide a different medium of exchange other than money with assets such as checks and debit cards. Mutual funds sell shares to the public and uses the money to buy a selection of different bonds and stocks. The shareholder accepts all risk of the selection he or she purchases. Obviously if the value of the portfolio increases, the shareholder benefits. The best thing about mutual funds is that they allow people with small amounts of money to spread out their holdings. This gives holders an advantage because the...

Other assignments on Saving, Investment, And The Financial System

The Global Financial Crisis: Assessing Vulnerability For Women And Children, Identifying Policy Responses

1801 words - 8 pages The Global Financial Crisis: Assessing Vulnerability for Women and Children, Identifying Policy Responses Mayra Buvinic World Bank February 2009 The current global financial crisis, on top of recent food price increases (which, while down from their peak last year continue to affect the poor in developing countries), will have serious gender specific consequences for women in poor countries and their children. While women (and men

Provide A Brief Overview Of The Juvenile Justice System In Ireland And Analyse Its Response To Young Offenders Making Reference To The Children Act 2001 In Your Answer

1224 words - 5 pages bnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnm Child Care Policy SS2006 Danielle Moynihan Student No.: 112434002 BSocSc 2 27/03/2014 | Child Care Policy SS2006 Q6. Provide a brief overview of the juvenile justice system in Ireland and analyse it’s response to

The Advancement Of Sales And Inventory System

713 words - 3 pages CRITICAL ANALYSIS ON POETRY I. TITLE: A POISON TREE II. AUTHROR: William Blake III. BRIEF BACKGROUND OF THE AUTHOR Born November 28, 1757 – London, England Died August 12, 1827 - London, England • Early years – Began his artistic career at 10 years old when his father sent him to the best drawing school in England – Apprenticed to an engraver at 14 • Adult life – Always worked as an engraver and professional artist – Was very poor

The Following Lyrics Discuss Whether The Government Stimulus Efforts In Response To The Recent Financial Crisis Worked And Also Argue Points About Government Policy During The Great Depression And The...

387 words - 2 pages * List three significant events that have happened in your life (these should be things that have changed you in one way or another).  * Going back to school * Separation of me and my husband * The loss of a good friend The first event I listed is important to me is because going back to school has had a big impact on me. It made me realize that having an education is very important to me it will provide a stable life for me and

Relationship Between The Savings Rate And Economic Growth Of China

1982 words - 8 pages Saving Rate by Region  Figure 2: Relation Between savings rate and Growth  Figure 3: Saving and Investment Rate of China  Table 1: National Reserves by Countries Page 5 6 7 8 2 Introduction: A savings rate is refers to the percentage of Gross Domestic Product (GDP) savings by households in a country. It indicates the financial state and growth of the country, as household saving is the main source of government borrowing to fund

Financial Regulation

954 words - 4 pages • Any other such business as BNM with the approval of the Minister may prescribe Merchant Banks (also known as Investment Banks) Merchant banks emerged in the Malaysian banking scene in the 1970s, making an important milestone in the development of the financial system alongside the corporate development of the country. They play a role in the short-term money market and capital raising activities including financing, specialising in

Strategic Profit Model

305 words - 2 pages NOTES FOR THE STRATEGIC PROFIT MODEL The Strategic Profit Model (also know as the DuPont Model) gives a visual view of an organization's finances and provides the ability to understand and analyze financial performance and return on investment (ROI). The tool provides visibility to the inter-relationship between the three major categories that contribute to ROI:  Margins, Asset Utilization and Capitalization through combinations of debt


542 words - 3 pages reduce investment over the long run but may be desirable in the short run if they help stabilize the economy when it falls below potential output In the long-run framework, budget surpluses: A. should be run whenever output dips below potential output. B. should never be run since they crowd out investment in the short run. C. are better than budget deficits over the long run because unlike budget deficits, they increase saving and investment

Energy Conservation

2416 words - 10 pages machinery power factor analysis Insulation and Distribution losses Lightning Motors and Drives performance analysis Equipment and process Modification Operation and Maintenance Cogeneration and Energy Management System. For each project i) the annual energy savings, ii)Project future energy cost and annual cost savings iii) project capital or first cost, iv) payback period, return on investment, and v) priorities to project

Mism Case Study Boa

966 words - 4 pages as a consumer of banking services via an ATM and to help you explore the underlying information management requirements of an ATM system. Assignment: 1. List the likely core business functions (high level; major business and financial services) at Bank of America as part of its product and service offerings? 2. List the steps required in a typical ATM transaction, such as drawing out cash or transferring funds from one account to another

Managerial Finance

1382 words - 6 pages auction and dealer market, electronic communications network is the only automatic order matching system. (p) Mortgage Securitization Mortgage securitization is when saving and loan association and banks sell mortgage to investment banks, which bundle the mortgage into a big pool and sell it to pension fund, insurance company and institutional investors. The process of securitization did not reduce the overall risk that streaming from

Similar Documents

Overview Of The Cardiovascular And Digestive System

499 words - 2 pages Cardiovascular System The cardiovascular system includes the heart, the blood and the blood vesicles. The heart is a muscular organ that pumps blood around the body by using blood vessels. The blood vessels consist of the arteries, veins and capillaries. The blood carries dissolved oxygen to the body cells and at the same time, it removes the waste products made by respiration. Blood also distributes heat throughout the body, along hormones

Affirmitive Action And The Usa College System

3238 words - 13 pages American society and Economy – BMAN 20610 Has Affirmative Action had any positive results? Should the policy be abandoned? ‘Affirmative Action has had an indelible imprint on the university environment’ [1] With primary focus on the impact that affirmative action (AA) has had to African Americans in regard to College admission, this essay will seek to ascertain to what extent the policy has lead to positive results. While in addition

The Currency And Monetary System In Hk

584 words - 3 pages 论港币存在必然性及合理性 ——探究香港货币金融制度 结题报告 The currency and monetary system in HK The Concluding Report Written by:Xin,Wu Instructed by: Yi, Yang May,2014 - 【摘要】 本报告简单研究了香港的货币政策,金融管理,并且对香港金融风暴以及香港货币制度进行了简单的分析。 【问题提出】 作为全球最大的金融中心之一的香港,同时作为中国“一国两制”地区之一。奉行资本主义制度的香港的金融体系又是如何管理以做到稳定的呢?香港的货币政策与大陆的货币政策又有什么不同呢? 【研究方案】 1、网络(主要了解宏观信息) 2、相关人员支持(咨询人员) 目录 Ⅰ 现存制度现状及分

The Prison System And Its Impact On Society

1318 words - 6 pages The Prison System and its Impact on Society Fort Hays University Impressions of the Correctional System Correctional officers expect their job to be mentally demanding and at times physically demanding. What they do not expect is to be a scapegoat because prison administrators pass the blame for system problems onto the correctional officers as a means of protecting themselves (Copes & Pogrebin, 2012). They also do not expect the lack