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I. Financial Assets and Financial Markets

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Financial Assets and Financial Markets

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  • I. Financial Assets and Financial Markets

  • Circular Flow of Income, Payments, and Production

  • Three Types of Markets

  • Financial Assets (1)CharacteristicsStore of valuePromise future returnsFungibleDifferent KindsMoneyEquitiesDebt SecuritiesDerivatives

  • Financial Assets (2)Financial Asset: Any Asset Held by a Business Firm, Government, or Household That is Also Recorded as a Liability or Claim on Some Other Economic Units Balance Sheet Financial Assets=Financial Claims

  • US Financial Assets Holdings in 2001

  • Money as a Financial AssetWhat is Money?M1 Sum of currency and coin held by publicM2 M1 + small savings and time deposits (
  • The Value of Money and Other Financial Assets and InflationInflation vs. DeflationPrice IndicesConsumer Price Index (CPI)Producer Price Index (PPI)GDP Deflator Index

  • Types of Financial MarketsMoney Market vs. Capital MarketOpen Market vs. Negotiated MarketPrimary Market vs. Secondary MarketSpot Market vs. Futures, Forward, and Option Markets

  • Portfolio (Financial Asset) DecisionsDeciding What To Buy or SellRisk-ReturnMaturity (Investment Horizon)Risk AppetiteObjectivesDeciding How To Buy or SellFinancingTiming