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How the Federal Deposit Insurance
Corporation Works?
If you bank in the United States, you've probably seen the sticker
posted on the door of your bank: FDIC. Maybe you've taken the time to
expand the acronym: Federal Deposit Insurance Corporation.
Maybe you've read the sticker's little assurance: "Each depositor
insured to at least $100,000."
But what is the Federal Deposit Insurance Corporation? Where did it
come from?
How does it work? What does its insurance cover? To
understand why the FDIC was created and how it works, it helps to
understand the basic premises of insurance.
------------------------------------------
Insurance is like gambling. When you buy an insurance
policy, whether it's auto, life or medical insurance, the insurance
company assesses the risk of insuring you by asking questions like,
what's the likelihood that a driver of a certain age and driving history is
going to get into a fender bender?
What's the likelihood that a woman of a certain age and medical history
is going to accrue serious medical costs?
What's the likelihood that employees working in a warehouse filled with
dangerous machinery are going to get hurt?
If you're considered a low risk, the company will charge you a relatively
low premium, a fee you pay for the insurance coverage. If you're
considered a high risk, the company will charge you a high premium, or
-- if you are a truly bad gamble -- choose not to cover you at all.
The premiums you pay go to the insurance company's insurance fund,
which the company uses to pay an insured member when his car gets
sideswiped or he hits his head on a forklift.
The FDIC's depositor insurance is, in principle, no different from any
other insurance. Instead of insuring cars and workers, however, the
FDIC insures people who hold deposit accounts with U.S. banking
institutions.
For how long has the FDIC been around? How did it come to exist in
the first place? Take a look at the
-------------------------------------
Your Tax Dollars at Work? Nope.
The FDIC, a corporation set up by the United States government to help
regulate the U.S. banking system, is not funded by federal income tax
dollars. The FDIC is funded by insurance premiums of member banks
and by its own investments.
Corporation Works?
If you bank in the United States, you've probably seen the sticker
posted on the door of your bank: FDIC. Maybe you've taken the time to
expand the acronym: Federal Deposit Insurance Corporation.
Maybe you've read the sticker's little assurance: "Each depositor
insured to at least $100,000."
But what is the Federal Deposit Insurance Corporation? Where did it
come from?
How does it work? What does its insurance cover? To
understand why the FDIC was created and how it works, it helps to
understand the basic premises of insurance.
------------------------------------------
Insurance is like gambling. When you buy an insurance
policy, whether it's auto, life or medical insurance, the insurance
company assesses the risk of insuring you by asking questions like,
what's the likelihood that a driver of a certain age and driving history is
going to get into a fender bender?
What's the likelihood that a woman of a certain age and medical history
is going to accrue serious medical costs?
What's the likelihood that employees working in a warehouse filled with
dangerous machinery are going to get hurt?
If you're considered a low risk, the company will charge you a relatively
low premium, a fee you pay for the insurance coverage. If you're
considered a high risk, the company will charge you a high premium, or
-- if you are a truly bad gamble -- choose not to cover you at all.
The premiums you pay go to the insurance company's insurance fund,
which the company uses to pay an insured member when his car gets
sideswiped or he hits his head on a forklift.
The FDIC's depositor insurance is, in principle, no different from any
other insurance. Instead of insuring cars and workers, however, the
FDIC insures people who hold deposit accounts with U.S. banking
institutions.
For how long has the FDIC been around? How did it come to exist in
the first place? Take a look at the
-------------------------------------
Your Tax Dollars at Work? Nope.
The FDIC, a corporation set up by the United States government to help
regulate the U.S. banking system, is not funded by federal income tax
dollars. The FDIC is funded by insurance premiums of member banks
and by its own investments.
| Introduction To Money Market Mutual Funds Investors interested in the money market can access it most easily through money market mutual funds, but these vehicles do not let smaller investors off the hook when it comes to having a rudimentary understanding of the Treasury bills, commercial paper, bankers acceptances, repurchase agreements and certificates of deposit that make up the bulk of money market mutual fund portfolios. In this article, we'll show you how money market funds work and how they can benefit you. --------------------------------- Purpose of Money Market Mutual Funds for Investors There are three instances when money market mutual funds, because of their liquidity, are particularly suitable investments. Money market mutual funds offer a convenient parking place for cash reserves when an investor is not quite ready to make an investment or is anticipating a near-term cash outlay for a non-investment purpose. Money market mutual funds offer ultimate safety and liquidity. This means that investors will have an expected sum of cash at the very moment that they need it. ----------------- An investor holding a basket of mutual funds from a single fund company may occasionally want to transfer assets from one fund to another. If, however, the investor wants to sell a fund before deciding on another fund to purchase, a money market mutual fund offered by the same fund company may be a good place to park the proceeds of sale. Then, at the appropriate time, the investor may exchange his or her money market mutual fund holdings for shares of the other funds in the fund family. To benefit their clients, brokerage firms regularly use money market mutual funds to provide cash management services. Putting a client's dormant cash into money market mutual funds will earn the client an extra percentage point (or two) in annual returns above those earned by other possible investments ------------------------------------------------------------------------------------------------- Operational Details of Money Market Mutual Funds Money market mutual funds are designed to offer features that are particularly suited to the needs of small investors. Minimum initial investments generally range from $500 to $5,000. You can purchase money market mutual funds directly from brokerage companies or mutual fund firms, just as you would purchase a stock or equity mutual. As investment advisors, some banks also sell money market funds and some even have their own proprietary funds that offer money market investment opportunities. These should not be confused with money market accounts, which are interest-earnings savings accounts. Money market mutual funds also offer some simplified withdrawal features that are more typically associated with bank or trust accounts. For example, money market funds allow investors to withdraw assets by writing checks, usually of a minimum amount, say, $500 per check. If the investor does not want to write a check as a means of withdrawing funds, he or she can easily redeem shares by requesting payment by mail or by remittance through a wire transfer to his or her bank account. |
| Money Market Funds For over 30 years, money market funds have treated investors well. Money market funds have been around for over 35 years and are a very popular place for investors to park their money. How popular? As of Feb. 21, 2007, 2.3 trillion dollars worth of popularity! Money market funds are a type of mutual fund that invests in short-term (less than a year) debt securities of agencies of the U.S. Government, banks and corporations and U.S. Treasury Bills. They are fixed at $1 per share and only the yield fluctuates. Banks prefer you never hear about the 1000-plus money market funds available to investors. These funds offer advantages that savings accounts, checking accounts and CD's can't beat, including: ---------------------------------- High Liquidity Money market funds are very liquid, meaning you can take money out of them on short notice. There is no penalty for taking money out of your money market fund, unlike Certificates of Deposit (CD's) that impose large fees for withdrawing your money. You can also write checks from your money market account (typically three a month). Low Risk Money market funds are not FDIC insured, but they are still very secure because they are holding very safe investments like t-bills. Government debt securities are considered very safe because the government has the ability to raise taxes to meet its obligations. It is virtually impossible to lose your principle in money market funds. To top it off, most mutual fund companies carry some sort of insurance to cover your assets. Competitive Yields Your checking and savings accounts will have a tough time beating the yield of a money market fund. Money market funds return an average of 4 to 6 percent a year, which rivals the return of CD's. The interest is calculated daily, but only paid out at the end of the month unless you sell the fund, then it is paid at that time. Money Market Funds Widely Used As mentioned earlier, about 2.36 trillion dollars of investors' money was in money market funds in 2007. If you sell a stock or a mutual fund, your broker or fund company will typically move your proceeds into a money market account so you can collect interest. Also, when you open an account with most brokerage firms or fund companies, your money is typically put into a money market account until you are ready to purchase bonds or equities. Money market funds are clearly a smart place to hold your money. If you are between investments, saving for a house, saving for a vehicle purchase, or just looking for a safe place to put money, I urge you to put the money in a money market fund. There is no reason to hold large amounts of money at the bank. ---------------------------------- What is a Certificate of Deposit Answer: A certificate of deposit ("CD") is a short to medium-term, FDIC insured investment available at banks and savings and loan institutions. Customers agree to lend money to the institutions for a certain amount of time. In exchange for doing so, the customers is paid a predetermined rate of interest. Often, banks will charge a penalty fee if the money is withdrawn from the CD before it matures. The purpose of this Estimator is to help you understand your share insurance protection. |
| Bond Basics: Different Types Of Bonds Government Bonds In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories: Bills - debt securities maturing in less than one year. Notes - debt securities maturing in one to 10 years. Bonds - debt securities maturing in more than 10 years. Marketable securities from the U.S. government - known collectively as Treasuries - follow this guideline and are issued as Treasury bonds, Treasury notes and Treasury bills (T-bills). Technically speaking, T-bills aren't bonds because of their short maturity. (You can read more about T-bills in our Money Market tutorial.) All debt issued by Uncle Sam is regarded as extremely safe, as is the debt of any stable country. The debt of many developing countries, however, does carry substantial risk. Like companies, countries can default on payments.  Municipal Bonds Municipal bonds, known as "munis", are the next progression in terms of risk. Cities don't go bankrupt that often, but it can happen. The major advantage to munis is that the returns are free from federal tax. Furthermore, local governments will sometimes make their debt non-taxable for residents, thus making some municipal bonds completely tax free. Because of these tax savings, the yield on a muni is usually lower than that of a taxable bond. Depending on your personal situation, a muni can be a great investment on an after-tax basis. Corporate Bonds A company can issue bonds just as it can issue stock. Large corporations have a lot of flexibility as to how much debt they can issue: the limit is whatever the market will bear. Generally, a short-term corporate bond is less than five years; intermediate is five to 12 years, and long term is over 12 years. Corporate bonds are characterized by higher yields because there is a higher risk of a company defaulting than a government. The upside is that they can also be the most rewarding fixed-income investments because of the risk the investor must take on. The company's credit quality is very important: the higher the quality, the lower the interest rate the investor receives. Other variations on corporate bonds include convertible bonds, which the holder can convert into stock, and callable bonds, which allow the company to redeem an issue prior to maturity. Treasury bonds (T-Bonds, or the long bond) have the longest maturity, from ten years to thirty years. They have coupon payment every six months like T-Notes, and are commonly issued with maturity of thirty years. The secondary market is highly liquid, so the yield on the most recent T-Bond offering was commonly used as a proxy for long-term interest rates in general. This role has largely been taken over by the 10-year note, as the size and frequency of long-term bond issues declined significantly in the 1990s and early 2000s. The U.S. Federal government stopped issuing the well-known 30-year Treasury bonds (often called long-bonds) on October 31, 2001. As the U.S. government used its budget surpluses to pay down the Federal debt in the late 1990s, the 10-year Treasury note began to replace the 30-year Treasury bond as the general, most-followed metric of the U.S. bond market. However, due to demand from pension funds and large, long-term institutional investors, along with a need to diversify the Treasury's liabilities - and also because the flatter yield curve meant that the opportunity cost of selling long- dated debt had dropped - the 30-year Treasury bond was re-introduced in February 2006 and is now issued quarterly. This will bring the U.S. in line with Japan and European governments issuing longer-dated maturities amid growing global demand from pension funds. Some countries, including France and the United Kingdom, have begun offering a 50-year bond, known as a Methuselah. How Do I Buy Bonds? Most bond transactions can be completed through a full service or discount brokerage. You can also open an account with a bond broker, but be warned that most bond brokers require a minimum initial deposit of $5,000. If you cannot afford this amount, we suggest looking at a mutual fund that specializes in bonds (or a bond fund). Some financial institutions will provide their clients with the service of transacting government securities. However, if your bank doesn't provide this service and you do not have a brokerage account, you can purchase government bonds through a government agency (this is true in most countries). In the U.S. you can buy bonds directly from the government through TreasuryDirect at http://www.treasurydirect.gov. The Bureau of the Public Debt started TreasuryDirect so that individuals could buy bonds directly from the Treasury, thereby bypassing a broker. All transactions and interest payments are done electronically. If you do decide to purchase a bond through your broker, he or she may tell you that the trade is commission free. Don't be fooled. What typically happens is that the broker will mark up the price slightly; this markup is really the same as a commission. To make sure that you are not being taken advantage of, simply look up the latest quote for the bond and determine whether the markup is acceptable. Remember, you should research bonds just as you would stocks. We've gone over several factors you need to consider before loaning money to a government or company, so do your homework Treasury note Treasury notes (or T-Notes) mature in two to ten years. They have a coupon payment every six months, and are commonly issued with maturities dates of 2, 5 or 10 years, for denominations from $100 to $1,000,000. T-Notes and T-Bonds are quoted on the secondary market at percentage of par in thirty-seconds of a point. Thus, for example, a quote of 95: 07 on a note indicates that it is trading at a discount: $952.19 (i.e. 95 7/32%) for a $1,000 bond. (Several different notations may be used for bond price quotes. The example of 95 and 7/32 points may be written as 95:07, or 95-07, or 95'07, or decimalized as 95.21875.) Other notation includes a +, which indicates 1/64 points and a third digit may be specified to represent 1/256 points. Examples include 95:07+ which equates to (95 + 7/32 + 1/64) and 95: 073 which equates to (95 + 7/32 + 3/256). Notation such as 95:073+ is unusual and not typically used. The 10-year Treasury note has become the security most frequently quoted when discussing the performance of the U.S. government-bond market and is used to convey the market's take on longer-term macroeconomic expectations. |
 | |  | |  | |  | |  |
Money crisis: FINANCIAL SYSTEM IN TROUBLE: BAIL-OUT PACKAGE. Americans react
Real people across the country answer the questions: what are you doing with your money in the wake of the financial crisis? Where is the safe
place to put MONEY? HERE ARE THE SAFEST PLACES WHERE YOU CAN PUT YOUR MONEY AND HAVE PEACE OF MIND!
Real people across the country answer the questions: what are you doing with your money in the wake of the financial crisis? Where is the safe
place to put MONEY? HERE ARE THE SAFEST PLACES WHERE YOU CAN PUT YOUR MONEY AND HAVE PEACE OF MIND!
INVESTMENT: MAKE YOURSELF RICHER BY INVESTING THE
RIGHT WAY IN THE RIGHT PRODUCTS. REAL ESTATE
INVESTMENTS CAN HELP
STOCK MARKET: STOCK MARKET A WAY TO INVEST AND MULTIPLY YOUR
PROFITS. THESE INDUSTRIES HAS THOUSANDS OF COMPANIES TO BUY STOCKS
FROM.
MUTUAL FUNDS: MUTUAL FUNDS A WONDERFUL WAY TO INVEST YOUR MONEY.
Buying and Selling mutual funds
You can buy some mutual funds (no-load) by contacting the fund companies directly.
Other funds are sold through brokers, banks, financial planners, or insurance agents.
BOND FUNDS: INVESTING IN THE BONDS MARKET. WHAT ARE BONDS?
Have you ever borrowed money? Of course you have! Whether we hit our parents up for a
few bucks to buy candy as children or asked the bank for a mortgage, most of us have
borrowed money at some point in our lives.
FOREX MARKET: THE LARGEST MARKET IN THE WORLD TO INVEST AND
GET RICHER IF YOU USE THE RIGHT TOOL.
FOREIGN EXCHANGE-(forex or FX for short) is one of the most exciting, fast-paced
markets around. Until recently, trading in the forex market had been the domain of large
financial institutions, corporations, central banks, hedge funds and extremely wealthy
individuals. The emergence of the internet has changed all of this, and now it is possible
for average investors to buy and sell currencies easily with the click of a mouse.
TAX CERTIFICATES: TAX CERTIFICATE / TAX DEED: A BETTER WAY TO
INVEST MONEY AND GET RICHER.
TAX LIENS: How Can You Safely Earn 18% to 240% Per Year On Your
Investments? Yes you can... By investing in Government Issued Tax Liens, Tax deed
REITs: REIT: Real Estate Investment Trust. A GREAT WAY TO INVEST IN REAL
ESTATE WITHOUT TAKING A MORTGAGE LOAN
COMMERCIAL INVESTMENT. ALL THAT CAN HELP! COMMERCIAL REAL ESTATE; A
BETTER WAY TO INVEST AND GET RICHER! MULTI-WAYS TO WIN BIG IN
REAL ESTATE. WHAT IS COMMERCIAL REAL ESTATE?
FINANCIAL REPORT: HOW TO GET A MORTGAGE HOME LOAN? Securing a home loan
is the most important step in the home-buying process. Here are the basics for getting your
financing.
HOW TO GET PRE-QUALIFY FOR A HOME LOAN? 8 Fundamental Reasons to Get Pre-
Approved for a Home Loan!
The first and most important step in buying a home is getting pre-qualified for a home
loan.
BY GETTING PREQUALIFIED, YOU IMMEDIATELY FIND YOURSELF IN A STRONGER
NEGOTIATION POSITION.
YOU MADE YOURSELF MORE ATTRACTIVE TO SELLERS.
IDENTITY THEFT: WATCH OUT, STOP IT FROM HAPPENING, GET THE TOOLS YOU
NEED TO PREVENT IT RIGHT HERE! AT KNOWLEDGE FINANCIAL.COM
CREDIT HELP: Use Your Credit Clout: Credit Laws That are on Your Side; Understanding
Your Debt Collection Rights
CREDIT INFO: SAVE YOUR CREDIT, RESCUE IT, PROTECT IT, INCREASE YOUR
SCORE. WE HAVE VALUABLE INFORMATION TO HELP YOU
CREDIT CARDS: The American Credit Cards are very important to have; but credit cards
represent a danger for those who may not have the discipline, order or those who don't
think what a plastic card can do for them or to them! The borrowers are the slaves of the
lenders. Credit cards issuers are monsters the can eat the average consumers alive.
CREDIT RATING: THE IMPORTANCE OF YOUR CREDIT RATING! Credit Card Fraud: 21
Tips to Protect Yourself. More about your credit Score. Companies base your credit scores
on five categories
ID-THEFT: HOW TO PROTECT AND DEFEND YOURSELF AGAINST IDENTITY THEFT?
-----DETER, DETECT AND DEFEND?
TAX SAVING TIPS FOR INDIVIDUAL INVESTOR, GREAT INFORMATION FOR ALL. Taxes
The More You Know, the Less You’ll Pay
Business structures 101
LLP, LLC, S-corp and C-corp: It's not just alphabet soup! A breakdown of what
you need to know, in layman's terms.
what are you doing with your money in the wake of the
financial crisis?
Where is the safe place to put MONEY?
RIGHT WAY IN THE RIGHT PRODUCTS. REAL ESTATE
INVESTMENTS CAN HELP
STOCK MARKET: STOCK MARKET A WAY TO INVEST AND MULTIPLY YOUR
PROFITS. THESE INDUSTRIES HAS THOUSANDS OF COMPANIES TO BUY STOCKS
FROM.
MUTUAL FUNDS: MUTUAL FUNDS A WONDERFUL WAY TO INVEST YOUR MONEY.
Buying and Selling mutual funds
You can buy some mutual funds (no-load) by contacting the fund companies directly.
Other funds are sold through brokers, banks, financial planners, or insurance agents.
BOND FUNDS: INVESTING IN THE BONDS MARKET. WHAT ARE BONDS?
Have you ever borrowed money? Of course you have! Whether we hit our parents up for a
few bucks to buy candy as children or asked the bank for a mortgage, most of us have
borrowed money at some point in our lives.
FOREX MARKET: THE LARGEST MARKET IN THE WORLD TO INVEST AND
GET RICHER IF YOU USE THE RIGHT TOOL.
FOREIGN EXCHANGE-(forex or FX for short) is one of the most exciting, fast-paced
markets around. Until recently, trading in the forex market had been the domain of large
financial institutions, corporations, central banks, hedge funds and extremely wealthy
individuals. The emergence of the internet has changed all of this, and now it is possible
for average investors to buy and sell currencies easily with the click of a mouse.
TAX CERTIFICATES: TAX CERTIFICATE / TAX DEED: A BETTER WAY TO
INVEST MONEY AND GET RICHER.
TAX LIENS: How Can You Safely Earn 18% to 240% Per Year On Your
Investments? Yes you can... By investing in Government Issued Tax Liens, Tax deed
REITs: REIT: Real Estate Investment Trust. A GREAT WAY TO INVEST IN REAL
ESTATE WITHOUT TAKING A MORTGAGE LOAN
COMMERCIAL INVESTMENT. ALL THAT CAN HELP! COMMERCIAL REAL ESTATE; A
BETTER WAY TO INVEST AND GET RICHER! MULTI-WAYS TO WIN BIG IN
REAL ESTATE. WHAT IS COMMERCIAL REAL ESTATE?
FINANCIAL REPORT: HOW TO GET A MORTGAGE HOME LOAN? Securing a home loan
is the most important step in the home-buying process. Here are the basics for getting your
financing.
HOW TO GET PRE-QUALIFY FOR A HOME LOAN? 8 Fundamental Reasons to Get Pre-
Approved for a Home Loan!
The first and most important step in buying a home is getting pre-qualified for a home
loan.
BY GETTING PREQUALIFIED, YOU IMMEDIATELY FIND YOURSELF IN A STRONGER
NEGOTIATION POSITION.
YOU MADE YOURSELF MORE ATTRACTIVE TO SELLERS.
IDENTITY THEFT: WATCH OUT, STOP IT FROM HAPPENING, GET THE TOOLS YOU
NEED TO PREVENT IT RIGHT HERE! AT KNOWLEDGE FINANCIAL.COM
CREDIT HELP: Use Your Credit Clout: Credit Laws That are on Your Side; Understanding
Your Debt Collection Rights
CREDIT INFO: SAVE YOUR CREDIT, RESCUE IT, PROTECT IT, INCREASE YOUR
SCORE. WE HAVE VALUABLE INFORMATION TO HELP YOU
CREDIT CARDS: The American Credit Cards are very important to have; but credit cards
represent a danger for those who may not have the discipline, order or those who don't
think what a plastic card can do for them or to them! The borrowers are the slaves of the
lenders. Credit cards issuers are monsters the can eat the average consumers alive.
CREDIT RATING: THE IMPORTANCE OF YOUR CREDIT RATING! Credit Card Fraud: 21
Tips to Protect Yourself. More about your credit Score. Companies base your credit scores
on five categories
ID-THEFT: HOW TO PROTECT AND DEFEND YOURSELF AGAINST IDENTITY THEFT?
-----DETER, DETECT AND DEFEND?
TAX SAVING TIPS FOR INDIVIDUAL INVESTOR, GREAT INFORMATION FOR ALL. Taxes
The More You Know, the Less You’ll Pay
Business structures 101
LLP, LLC, S-corp and C-corp: It's not just alphabet soup! A breakdown of what
you need to know, in layman's terms.
what are you doing with your money in the wake of the
financial crisis?
Where is the safe place to put MONEY?
YOUR MONEY, YOUR SAVING
With banks falling like dominos, there's a lot of
worry about the solvency of financial
institutions.
Some people are pulling their cash out of the
stock market and putting it into FDIC-insured
accounts, while others are hiding theirs under
their mattress.
Before you make any drastic moves, read these
answers to some common questions about your
savings.
Are there any safe havens left?
It sure doesn't feel like it. Even conservative
investments - like ultrashort- term bond funds
and a single money market fund - have lost
value recently. But rest assured, your cash
accounts are still extremely safe.
To shore up confidence in money-market
mutual funds after a prominent portfolio "broke
the buck," the Treasury Department launched
an insurance plan to guarantee their value.
What's more, bank money-market accounts and
CDs are as protected as ever. While it's certainly
hard to tell which banks will eventually survive
this financial meltdown, your accounts are
FDIC-insured.
Finally, if you're looking for a safe option within
your 401(k), consider a stable value fund. These
portfolios often invest in a diversified mix of
short- to intermediate- term bonds that are
backed by different insurers. Plus, they've been
yielding around 4% lately.
Is my bank or brokerage going to disappear?
Even with the government stepping in to buy up
the crummy mortgage-backed securities that
are endangering the health of so many banks
and brokers, this relief won't be immediate.
It may take weeks for the Treasury Department
to put together a team to evaluate these bonds.
In the meantime, more banks and brokers could
go under or be forced to sell out to healthier
firms.
With banks falling like dominos, there's a lot of
worry about the solvency of financial
institutions.
Some people are pulling their cash out of the
stock market and putting it into FDIC-insured
accounts, while others are hiding theirs under
their mattress.
Before you make any drastic moves, read these
answers to some common questions about your
savings.
Are there any safe havens left?
It sure doesn't feel like it. Even conservative
investments - like ultrashort- term bond funds
and a single money market fund - have lost
value recently. But rest assured, your cash
accounts are still extremely safe.
To shore up confidence in money-market
mutual funds after a prominent portfolio "broke
the buck," the Treasury Department launched
an insurance plan to guarantee their value.
What's more, bank money-market accounts and
CDs are as protected as ever. While it's certainly
hard to tell which banks will eventually survive
this financial meltdown, your accounts are
FDIC-insured.
Finally, if you're looking for a safe option within
your 401(k), consider a stable value fund. These
portfolios often invest in a diversified mix of
short- to intermediate- term bonds that are
backed by different insurers. Plus, they've been
yielding around 4% lately.
Is my bank or brokerage going to disappear?
Even with the government stepping in to buy up
the crummy mortgage-backed securities that
are endangering the health of so many banks
and brokers, this relief won't be immediate.
It may take weeks for the Treasury Department
to put together a team to evaluate these bonds.
In the meantime, more banks and brokers could
go under or be forced to sell out to healthier
firms.
The Ultimate Retirement Guide for Everyone; Retire
Rich, Retire Early.
THE BEST RETIREMENT GUIDE EVER; WHAT ARE
401K, ROTH 401K, INDIVIDUAL 401K, 403B, 457
PLAN, THRIFT SAVINGS PLAN.
What is a SEP IRA? What is a SIMPLE IRA? --- SEE
BELOW!
Long-term care insurance?
Is a long-term care insurance policy really provides
money to help cover the costs of living if you are no
longer able to take care of yourself.?
SOCIAL SECURITY RETIREMENT GUIDE. HOW DOES
SOCIAL SECURITY WORK?
What is the importance and benefits of life insurance
in real life, and at retirement age?
Pension Plans / IRA / INDIVIDUAL RETIREMENT
ACCOUNT. What is an IRA? And what does it matter?
What is Annuity Insurance Investment, Annuity &
Pension Insurance? Are Annuities Planning today for
a secure tomorrow?
Rich, Retire Early.
THE BEST RETIREMENT GUIDE EVER; WHAT ARE
401K, ROTH 401K, INDIVIDUAL 401K, 403B, 457
PLAN, THRIFT SAVINGS PLAN.
What is a SEP IRA? What is a SIMPLE IRA? --- SEE
BELOW!
Long-term care insurance?
Is a long-term care insurance policy really provides
money to help cover the costs of living if you are no
longer able to take care of yourself.?
SOCIAL SECURITY RETIREMENT GUIDE. HOW DOES
SOCIAL SECURITY WORK?
What is the importance and benefits of life insurance
in real life, and at retirement age?
Pension Plans / IRA / INDIVIDUAL RETIREMENT
ACCOUNT. What is an IRA? And what does it matter?
What is Annuity Insurance Investment, Annuity &
Pension Insurance? Are Annuities Planning today for
a secure tomorrow?
KNOWLEDGEFINANCIALGROUP.COM
Gross National Product - GNP'
GNP measures the total monetary
value of the total output produced
by a country's residents. Therefore, any output
produced by foreign residents within the country's borders must be
excluded in calculations of GNP, while any output produced by the
country's residents outside of its borders must be counted. GNP does
not include intermediary goods and services to avoid double-counting
since they are already incorporated in the value of final products and
services.
--------------
The Difference Between GNP and
GDP
GNP and GDP are very closely
related concepts, and the main differences between
them comes from the fact that there may be companies owned by
foreign residents that produce goods in the country, and companies
owned by domestic residents that produce products for the rest of the
world and revert earned income to domestic residents.
For example, there are a number of foreign companies that produce
products and services in the United States and transfer any income
earned to their foreign residents.
Likewise, many U.S. corporations produce goods and services outside
of the U.S. borders and earn profits for U.S. residents. If income earned
by domestic corporations outside of the United States exceeds income
earned within the United States by corporations owned by foreign
residents, the U.S. GNP is higher than its GDP.
While GDP is the most widely-followed measure of a country's economic
activity, GNP is still worth looking at because large differences between
GNP and GDP may indicate that a country is getting more engaged in
international trade , production or financial operations.
Finally, real GNP may prove to be a more useful measure, since it
factors out any changes in national income due to inflation. The real
GNP takes nominal GNP measured in current prices and adjusts for any
changes in price level for goods and services included in the
calculation of GNP.
GNP measures the total monetary
value of the total output produced
by a country's residents. Therefore, any output
produced by foreign residents within the country's borders must be
excluded in calculations of GNP, while any output produced by the
country's residents outside of its borders must be counted. GNP does
not include intermediary goods and services to avoid double-counting
since they are already incorporated in the value of final products and
services.
--------------
The Difference Between GNP and
GDP
GNP and GDP are very closely
related concepts, and the main differences between
them comes from the fact that there may be companies owned by
foreign residents that produce goods in the country, and companies
owned by domestic residents that produce products for the rest of the
world and revert earned income to domestic residents.
For example, there are a number of foreign companies that produce
products and services in the United States and transfer any income
earned to their foreign residents.
Likewise, many U.S. corporations produce goods and services outside
of the U.S. borders and earn profits for U.S. residents. If income earned
by domestic corporations outside of the United States exceeds income
earned within the United States by corporations owned by foreign
residents, the U.S. GNP is higher than its GDP.
While GDP is the most widely-followed measure of a country's economic
activity, GNP is still worth looking at because large differences between
GNP and GDP may indicate that a country is getting more engaged in
international trade , production or financial operations.
Finally, real GNP may prove to be a more useful measure, since it
factors out any changes in national income due to inflation. The real
GNP takes nominal GNP measured in current prices and adjusts for any
changes in price level for goods and services included in the
calculation of GNP.
Gross domestic product (GDP) is a
monetary measure of the market value of all final goods and services
produced in a period (quarterly or yearly).
Nominal GDP estimates are commonly used to determine the economic
performance of a whole country or region, and to make international
comparisons.
Nominal GDP per capita does not, however, reflect differences in the
cost of living and the inflation rates of the countries; therefore using a
GDP PPP per capita basis is arguably more useful when comparing
differences in living standards between nations.
monetary measure of the market value of all final goods and services
produced in a period (quarterly or yearly).
Nominal GDP estimates are commonly used to determine the economic
performance of a whole country or region, and to make international
comparisons.
Nominal GDP per capita does not, however, reflect differences in the
cost of living and the inflation rates of the countries; therefore using a
GDP PPP per capita basis is arguably more useful when comparing
differences in living standards between nations.
After the Bretton Woods conference in
1944, GDP became the main tool for
measuring a country's economy.
At that time gross national product (GNP)
was the preferred estimate, which differed
from GDP in that it measured production
by a country's citizens at home and abroad
rather than its 'resident institutional units
1944, GDP became the main tool for
measuring a country's economy.
At that time gross national product (GNP)
was the preferred estimate, which differed
from GDP in that it measured production
by a country's citizens at home and abroad
rather than its 'resident institutional units
Financial market
A financial market is a market in which people trade
financial securities, commodities, and other fungible
items of value at low transaction costs and at prices that
reflect supply and demand. Securities include stocks
and bonds, and commodities include precious metals or
agricultural products.
In economics, typically, the term market
means the aggregate of possible buyers and sellers of a
certain good or service and the transactions between
them.
The term "market" is sometimes used for
what are more strictly exchanges, organizations that
facilitate the trade in financial securities, e.g., a stock
exchange or commodity exchange. This may be a
physical location (like the NYSE, BSE, NSE) or an
electronic system (like NASDAQ).
Much trading of stocks takes place on an exchange; still,
corporate actions (merger, spinoff) are outside an
exchange, while any two companies or people, for
whatever reason, may agree to sell stock from the one
to the other without using an exchange.
Trading of currencies and bonds is
largely on a bilateral basis, although some bonds trade
on a stock exchange, and people are building electronic
systems for these as well, similar to stock exchanges.
A financial market is a market in which people trade
financial securities, commodities, and other fungible
items of value at low transaction costs and at prices that
reflect supply and demand. Securities include stocks
and bonds, and commodities include precious metals or
agricultural products.
In economics, typically, the term market
means the aggregate of possible buyers and sellers of a
certain good or service and the transactions between
them.
The term "market" is sometimes used for
what are more strictly exchanges, organizations that
facilitate the trade in financial securities, e.g., a stock
exchange or commodity exchange. This may be a
physical location (like the NYSE, BSE, NSE) or an
electronic system (like NASDAQ).
Much trading of stocks takes place on an exchange; still,
corporate actions (merger, spinoff) are outside an
exchange, while any two companies or people, for
whatever reason, may agree to sell stock from the one
to the other without using an exchange.
Trading of currencies and bonds is
largely on a bilateral basis, although some bonds trade
on a stock exchange, and people are building electronic
systems for these as well, similar to stock exchanges.
Types of financial markets
.
Capital markets which to consist
of:
Stock markets, which provide financing through the
issuance of shares or common stock, and enable the subsequent
trading thereof.
Bond markets, which provide financing through the
issuance of bonds, and enable the subsequent trading thereof.
Commodity markets, which facilitate the trading of
commodities.
Money markets, which provide short term debt financing and
investment.
Derivatives markets, which provide instruments for the
management of financial risk.
Futures markets, which provide standardized forward
contracts for trading products at some future date; see also forward
market.
Foreign exchange markets, which facilitate the trading of foreign
exchange.
Spot market
Interbanks market
The capital markets may also be divided
into primary markets and secondary
markets. Newly formed (issued) securities are bought or sold in
primary markets, such as during initial public offerings.
Secondary markets allow investors to buy
and sell existing securities. The transactions in primary
markets exist between issuers and investors, while secondary market
transactions exist among investors.
Liquidity is a crucial aspect of securities
that are traded in secondary markets. Liquidity
refers to the ease with which a security can be sold without a loss of
value.
Securities with an active secondary market mean that there are many
buyers and sellers at a given point in time. Investors benefit from liquid
securities because they can sell their assets whenever they want; an
illiquid security may force the seller to get rid of their asset at a large
discount.
.
Capital markets which to consist
of:
Stock markets, which provide financing through the
issuance of shares or common stock, and enable the subsequent
trading thereof.
Bond markets, which provide financing through the
issuance of bonds, and enable the subsequent trading thereof.
Commodity markets, which facilitate the trading of
commodities.
Money markets, which provide short term debt financing and
investment.
Derivatives markets, which provide instruments for the
management of financial risk.
Futures markets, which provide standardized forward
contracts for trading products at some future date; see also forward
market.
Foreign exchange markets, which facilitate the trading of foreign
exchange.
Spot market
Interbanks market
The capital markets may also be divided
into primary markets and secondary
markets. Newly formed (issued) securities are bought or sold in
primary markets, such as during initial public offerings.
Secondary markets allow investors to buy
and sell existing securities. The transactions in primary
markets exist between issuers and investors, while secondary market
transactions exist among investors.
Liquidity is a crucial aspect of securities
that are traded in secondary markets. Liquidity
refers to the ease with which a security can be sold without a loss of
value.
Securities with an active secondary market mean that there are many
buyers and sellers at a given point in time. Investors benefit from liquid
securities because they can sell their assets whenever they want; an
illiquid security may force the seller to get rid of their asset at a large
discount.
Relationship
between lenders
and borrowers.....
Lenders :
Individuals
Companies
----------
Financial Intermediaries:
Banks
Insurance Companies
Pension Funds
Mutual Funds
----------------------
Financial Markets:
Interbank
Stock Exchange
Money Market
Bond Market
Foreign Exchange
----------------
Individuals:
Companies
Central Government
Municipalities
Public Corporations
between lenders
and borrowers.....
Lenders :
Individuals
Companies
----------
Financial Intermediaries:
Banks
Insurance Companies
Pension Funds
Mutual Funds
----------------------
Financial Markets:
Interbank
Stock Exchange
Money Market
Bond Market
Foreign Exchange
----------------
Individuals:
Companies
Central Government
Municipalities
Public Corporations
Lenders
The lender temporarily gives money to somebody
else, on the condition of getting back the principal
amount together with some interest/profit or charge.
Individuals & Doubles
Many individuals are not
aware that they are
lenders, but almost everybody does lend
money in many ways. A person lends money when he
or she:
Puts money in a savings account at a bank
Contributes to a pension plan
Pays premiums to an insurance company
Invests in government bonds
Companies
Companies tend to be lenders of capital. When
companies have surplus cash that is not needed for a
short period of time, they may seek to make money
from their cash surplus by lending it via short term
markets called money markets.
Alternatively, such companies may
decide to return the cash surplus to their
shareholders (e.g. via a share repurchase or dividend
payment).
Borrowers
Individuals borrow money via bankers' loans for short
term needs or longer term mortgages to help finance
a house purchase.
Companies borrow money to aid
short term or long term cash
flows. They also borrow to fund modernization or
future business expansion.
Governments often find their spending requirements
exceed their tax revenues.
To make up this difference, they
need to borrow. Governments also borrow on
behalf of nationalized industries, municipalities, local
authorities and other public sector bodies.
Governments borrow by issuing
bonds.
The lender temporarily gives money to somebody
else, on the condition of getting back the principal
amount together with some interest/profit or charge.
Individuals & Doubles
Many individuals are not
aware that they are
lenders, but almost everybody does lend
money in many ways. A person lends money when he
or she:
Puts money in a savings account at a bank
Contributes to a pension plan
Pays premiums to an insurance company
Invests in government bonds
Companies
Companies tend to be lenders of capital. When
companies have surplus cash that is not needed for a
short period of time, they may seek to make money
from their cash surplus by lending it via short term
markets called money markets.
Alternatively, such companies may
decide to return the cash surplus to their
shareholders (e.g. via a share repurchase or dividend
payment).
Borrowers
Individuals borrow money via bankers' loans for short
term needs or longer term mortgages to help finance
a house purchase.
Companies borrow money to aid
short term or long term cash
flows. They also borrow to fund modernization or
future business expansion.
Governments often find their spending requirements
exceed their tax revenues.
To make up this difference, they
need to borrow. Governments also borrow on
behalf of nationalized industries, municipalities, local
authorities and other public sector bodies.
Governments borrow by issuing
bonds.
Derivative products
During the 1980s and 1990s, a major growth sector in financial markets was the trade in
so called derivative products, or derivatives for short.
In the financial markets, stock prices, bond prices, currency rates, interest rates and
dividends go up and down, creating risk. Derivative products are financial products
which are used to control risk or paradoxically exploit risk.[2] It is also called financial
economics.
Derivative products or instruments help the issuers to gain an unusual profit from
issuing the instruments. For using the help of these products a contract has to be
made. Derivative contracts are mainly 4 types:[3]
Future
Forward
Option
Swap
During the 1980s and 1990s, a major growth sector in financial markets was the trade in
so called derivative products, or derivatives for short.
In the financial markets, stock prices, bond prices, currency rates, interest rates and
dividends go up and down, creating risk. Derivative products are financial products
which are used to control risk or paradoxically exploit risk.[2] It is also called financial
economics.
Derivative products or instruments help the issuers to gain an unusual profit from
issuing the instruments. For using the help of these products a contract has to be
made. Derivative contracts are mainly 4 types:[3]
Future
Forward
Option
Swap
Initial Public Offering - IPO
IPO, stands for initial public
offering, which is the process a
new private company goes
through to "go public" or
become a publicly traded
company on some index.
IPO, stands for initial public
offering, which is the process a
new private company goes
through to "go public" or
become a publicly traded
company on some index.
Capital Market:
Financial Functions
Providing the borrower with funds
so as to enable them to carry out
their investment plans.
Providing the lenders with earning
assets so as to enable them to earn
wealth by deploying the assets in
production debentures.
Providing liquidity in the market so
as to facilitate trading of funds.
Providing liquidity to commercial
bank
Facilitating credit creation
Promoting savings
Promoting investment
Facilitating balanced economic
growth
Improving trading floors
Financial Functions
Providing the borrower with funds
so as to enable them to carry out
their investment plans.
Providing the lenders with earning
assets so as to enable them to earn
wealth by deploying the assets in
production debentures.
Providing liquidity in the market so
as to facilitate trading of funds.
Providing liquidity to commercial
bank
Facilitating credit creation
Promoting savings
Promoting investment
Facilitating balanced economic
growth
Improving trading floors
Primary market: Primary market is a
market for new issues or new financial
claims. Hence it’s also called new issue market. The
secondary market deals with those securities which are issued
to the public for the first time.
Secondary market: It’s a market for secondary
sale of securities. In other words, securities which have already
passed through the new issue market are traded in this market.
Generally, such securities are quoted in the stock exchange
and it provides a continuous and regular market for buying and
selling of securities.
Simply put, primary market is the market where the newly
started company issued shares to the public for the first time
through IPO (initial public offering). Secondary market is the
market where the second hand securities are sold
Money market: Money market is a market for
dealing with financial assets and securities which have a
maturity period of up to one year. In other words, it’s a market
for purely short term funds.
Capital market: A capital market is a market for
financial assets which have a long or indefinite maturity.
Generally it deals with long term securities which have a
maturity period of above one year.
Capital market may be further divided into: (a) industrial
securities market (b) Govt. securities market and (c) long term
loans market.
Equity markets: A market where ownership of
securities are issued and subscribed is known as equity
market. An example of a secondary equity market for shares is
the Bombay stock exchange.
Debt market: The market where funds are borrowed and
lent is known as debt market. Arrangements are made in such a
way that the borrowers agree to pay the lender the original
amount of the loan plus some specified amount of interest.
Derivative markets: A market where financial
instruments are derived and traded based on an underlying
asset such as commodities or stocks.
Financial service market: A market that comprises
participants such as commercial banks that provide various
financial services like ATM.
Credit cards. Credit rating, stock broking
etc. is known as financial service market. Individuals and firms
use financial services markets, to purchase services that
enhance the working of debt and equity markets.
Depository markets: A depository market consists of
depository institutions that accept deposit from individuals and
firms and uses these funds to participate in the debt market, by
giving loans or purchasing other debt instruments such as
treasure bills.
Non-depository market: Non-depository market
carry out various functions in financial markets ranging from
financial intermediary to selling, insurance etc.
The various constituency in non-depositary markets are mutual
funds, insurance companies, pension funds, brokerage firms
etc.
Autorité des marchés financiers :
Canada : Autorité des marchés
financiers (Québec)
États-Unis : Securities and
Exchange Commission
France : Autorité des marchés
financiers (France)
Suisse : Autorité fédérale de
surveillance des marchés
financiers
Canada : Autorité des marchés
financiers (Québec)
États-Unis : Securities and
Exchange Commission
France : Autorité des marchés
financiers (France)
Suisse : Autorité fédérale de
surveillance des marchés
financiers
Finance:
Finance is a field that deals with the study of investments.
It includes the dynamics of assets and liabilities over time
under conditions of different degrees of uncertainty and
risk.
Finance can also be defined as the science of money
management. Finance aims to price assets based on their
risk level and their expected rate of return.
Finance can be broken into three different
sub-categories: public finance, corporate finance and
personal finance.
------------------
Tax planning: typically the income tax
is the single largest expense in a household. Managing
taxes is not a question of if you will pay taxes, but when
and how much.
Government gives many incentives in the form of tax
deductions and credits, which can be used to reduce the
lifetime tax burden. Most modern governments use a
progressive tax.
Typically, as one's income grows, a higher marginal rate of
tax must be paid. Understanding how to take advantage
of the myriad tax breaks when planning one's personal
finances can make a significant impact in which it can
later save you money in the long term.
Investment and
accumulation goals:
planning how to accumulate enough money - for large
purchases and life events - is what most people consider
to be financial planning. Major reasons to accumulate
assets include, purchasing a house or car, starting a
business, paying for education expenses, and saving for
retirement.
Achieving these goals requires projecting what they will
cost, and when you need to withdraw funds that will be
necessary to be able to achieve these goals.
A major risk to the household in achieving their
accumulation goal is the rate of price increases over
time, or inflation. Using net present value calculators, the
financial planner will suggest a combination of asset
earmarking and regular savings to be invested in a
variety of investments.
In order to overcome the rate of inflation, the investment
portfolio has to get a higher rate of return, which typically
will subject the portfolio to a number of risks. Managing
these portfolio risks is most often accomplished using
asset allocation, which seeks to diversify investment risk
and opportunity.
This asset allocation will prescribe a percentage
allocation to be invested in stocks (either preferred stock
and/or common stock), bonds (for example mutual bonds
or government bonds, or corporate bonds), cash and
alternative investments.
The allocation should also take into consideration the
personal risk profile of every investor, since risk
attitudes vary from person to person.
Retirement planning is the
process of understanding how much it costs to live at
retirement, and coming up with a plan to distribute assets
to meet any income shortfall. Methods for retirement plan
include taking advantage of government allowed
structures to manage tax liability including: individual
(IRA) structures, or employer sponsored retirement plans.
Estate planning involves planning
for the disposition of one's assets after death. Typically,
there is a tax due to the state or federal government at
one's death.
Avoiding these taxes means that more of one's assets will
be distributed to one's heirs. One can leave one's assets
to family, friends or charitable groups.
Finance is a field that deals with the study of investments.
It includes the dynamics of assets and liabilities over time
under conditions of different degrees of uncertainty and
risk.
Finance can also be defined as the science of money
management. Finance aims to price assets based on their
risk level and their expected rate of return.
Finance can be broken into three different
sub-categories: public finance, corporate finance and
personal finance.
------------------
Tax planning: typically the income tax
is the single largest expense in a household. Managing
taxes is not a question of if you will pay taxes, but when
and how much.
Government gives many incentives in the form of tax
deductions and credits, which can be used to reduce the
lifetime tax burden. Most modern governments use a
progressive tax.
Typically, as one's income grows, a higher marginal rate of
tax must be paid. Understanding how to take advantage
of the myriad tax breaks when planning one's personal
finances can make a significant impact in which it can
later save you money in the long term.
Investment and
accumulation goals:
planning how to accumulate enough money - for large
purchases and life events - is what most people consider
to be financial planning. Major reasons to accumulate
assets include, purchasing a house or car, starting a
business, paying for education expenses, and saving for
retirement.
Achieving these goals requires projecting what they will
cost, and when you need to withdraw funds that will be
necessary to be able to achieve these goals.
A major risk to the household in achieving their
accumulation goal is the rate of price increases over
time, or inflation. Using net present value calculators, the
financial planner will suggest a combination of asset
earmarking and regular savings to be invested in a
variety of investments.
In order to overcome the rate of inflation, the investment
portfolio has to get a higher rate of return, which typically
will subject the portfolio to a number of risks. Managing
these portfolio risks is most often accomplished using
asset allocation, which seeks to diversify investment risk
and opportunity.
This asset allocation will prescribe a percentage
allocation to be invested in stocks (either preferred stock
and/or common stock), bonds (for example mutual bonds
or government bonds, or corporate bonds), cash and
alternative investments.
The allocation should also take into consideration the
personal risk profile of every investor, since risk
attitudes vary from person to person.
Retirement planning is the
process of understanding how much it costs to live at
retirement, and coming up with a plan to distribute assets
to meet any income shortfall. Methods for retirement plan
include taking advantage of government allowed
structures to manage tax liability including: individual
(IRA) structures, or employer sponsored retirement plans.
Estate planning involves planning
for the disposition of one's assets after death. Typically,
there is a tax due to the state or federal government at
one's death.
Avoiding these taxes means that more of one's assets will
be distributed to one's heirs. One can leave one's assets
to family, friends or charitable groups.
Capital market
A capital market is a financial market in which long-term debt
or equity-backed securities are bought and sold. Capital
markets are defined as markets in which money is provided
for periods longer than a year.
Capital markets channel the wealth of savers to those who
can put it to long-term productive use, such as companies or
governments making long-term investments.[a] Financial
regulators, such as the Autorité des marchés financiers :
Canada : Autorité des marchés financiers (Québec)
États-Unis : Securities and Exchange Commission
France : Autorité des marchés financiers (France)
Suisse : Autorité fédérale de surveillance des marchés
financiers
A capital market is a financial market in which long-term debt
or equity-backed securities are bought and sold. Capital
markets are defined as markets in which money is provided
for periods longer than a year.
Capital markets channel the wealth of savers to those who
can put it to long-term productive use, such as companies or
governments making long-term investments.[a] Financial
regulators, such as the Autorité des marchés financiers :
Canada : Autorité des marchés financiers (Québec)
États-Unis : Securities and Exchange Commission
France : Autorité des marchés financiers (France)
Suisse : Autorité fédérale de surveillance des marchés
financiers
A capital market can be either a
primary market or a secondary
market. In primary markets, new stock or bond issues
are sold to investors, often via a mechanism known as
underwriting.
The main entities seeking to raise long-term funds on the
primary capital markets are governments (which may be
municipal, local or national) and business enterprises
(companies). Governments issue only bonds, whereas
companies often issue either equity or bonds.
The main entities purchasing the bonds or stock include
pension funds, hedge funds, sovereign wealth funds, and less
commonly wealthy individuals and investment banks trading
on their own behalf. In the secondary markets, existing
securities are sold and bought among investors or traders,
usually on an exchange, over-the-counter, or elsewhere.
The existence of secondary markets increases the willingness
of investors in primary markets, as they know they are likely to
be able to swiftly cash out their investments if the need arises.
A second important division falls between the stock markets
(for equity securities, also known as shares, where investors
acquire ownership of companies) and the bond markets
(where investors become creditors)
primary market or a secondary
market. In primary markets, new stock or bond issues
are sold to investors, often via a mechanism known as
underwriting.
The main entities seeking to raise long-term funds on the
primary capital markets are governments (which may be
municipal, local or national) and business enterprises
(companies). Governments issue only bonds, whereas
companies often issue either equity or bonds.
The main entities purchasing the bonds or stock include
pension funds, hedge funds, sovereign wealth funds, and less
commonly wealthy individuals and investment banks trading
on their own behalf. In the secondary markets, existing
securities are sold and bought among investors or traders,
usually on an exchange, over-the-counter, or elsewhere.
The existence of secondary markets increases the willingness
of investors in primary markets, as they know they are likely to
be able to swiftly cash out their investments if the need arises.
A second important division falls between the stock markets
(for equity securities, also known as shares, where investors
acquire ownership of companies) and the bond markets
(where investors become creditors)
Difference between money
markets and capital markets
The money markets are used for the raising of short term finance,
sometimes for loans that are expected to be paid back as early as
overnight. Whereas the capital markets are used for the raising of
long term finance, such as the purchase of shares, or for loans that
are not expected to be fully paid back for at least a year.[1]
Funds borrowed from the money markets are typically used for general
operating expenses, to cover brief periods of liquidity.
For example, a company may have inbound payments from customers
that have not yet cleared, but may wish to immediately pay out cash for
its payroll.
When a company borrows from the primary capital markets, often the
purpose is to invest in additional physical capital goods, which will be
used to help increase its income. It can take many months or years
before the investment generates sufficient return to pay back its cost,
and hence the finance is long term
markets and capital markets
The money markets are used for the raising of short term finance,
sometimes for loans that are expected to be paid back as early as
overnight. Whereas the capital markets are used for the raising of
long term finance, such as the purchase of shares, or for loans that
are not expected to be fully paid back for at least a year.[1]
Funds borrowed from the money markets are typically used for general
operating expenses, to cover brief periods of liquidity.
For example, a company may have inbound payments from customers
that have not yet cleared, but may wish to immediately pay out cash for
its payroll.
When a company borrows from the primary capital markets, often the
purpose is to invest in additional physical capital goods, which will be
used to help increase its income. It can take many months or years
before the investment generates sufficient return to pay back its cost,
and hence the finance is long term
A government raising money
on the primary markets
When a government wants to raise long term finance it
will often sell bonds to the capital markets. In the 20th
and early 21st century, many governments would use
investment banks to organize the sale of their bonds.
The leading bank would underwrite the bonds, and would
often head up a syndicate of brokers, some of whom
might be based in other investment banks. The syndicate
would then sell to various investors.
For developing countries, a multilateral development
bank would sometimes provide an additional layer of
underwriting, resulting in risk being shared between the
investment bank(s), the multilateral organization, and the
end investors.
However, since 1997 it has been increasingly common
for governments of the larger nations to bypass
investment banks by making their bonds directly
available for purchase over the Internet.
Many governments now sell most of their bonds by
computerized auction. Typically large volumes are put up
for sale in one go; a government may only hold a small
number of auctions each year.
Some governments will also sell a continuous stream of
bonds through other channels. The biggest single seller
of debt is the US Government; there are usually several
transactions for such sales every second,[d] which
corresponds to the continuous updating of the US real
time debt clock.
on the primary markets
When a government wants to raise long term finance it
will often sell bonds to the capital markets. In the 20th
and early 21st century, many governments would use
investment banks to organize the sale of their bonds.
The leading bank would underwrite the bonds, and would
often head up a syndicate of brokers, some of whom
might be based in other investment banks. The syndicate
would then sell to various investors.
For developing countries, a multilateral development
bank would sometimes provide an additional layer of
underwriting, resulting in risk being shared between the
investment bank(s), the multilateral organization, and the
end investors.
However, since 1997 it has been increasingly common
for governments of the larger nations to bypass
investment banks by making their bonds directly
available for purchase over the Internet.
Many governments now sell most of their bonds by
computerized auction. Typically large volumes are put up
for sale in one go; a government may only hold a small
number of auctions each year.
Some governments will also sell a continuous stream of
bonds through other channels. The biggest single seller
of debt is the US Government; there are usually several
transactions for such sales every second,[d] which
corresponds to the continuous updating of the US real
time debt clock.
A company raising money
on the primary markets
When a company wants to raise money for long-term
investment, one of its first decisions is whether to do
so by issuing bonds or shares.
If it chooses shares, it avoids increasing its debt, and
in some cases the new shareholders may also provide
non monetary help, such as expertise or useful
contacts. On the other hand, a new issue of shares can
dilute the ownership rights of the existing
shareholders, and if they gain a controlling interest,
the new shareholders may even replace senior
managers.
From an investor's point of view, shares offer the
potential for higher returns and capital gains if the
company does well. Conversely, bonds are safer if the
company does poorly, as they are less prone to
severe falls in price, and in the event of bankruptcy,
bond owners are usually paid before shareholders.
When a company raises finance from the primary
market, the process is more likely to involve
face-to-face meetings than other capital market
transactions.
Whether they choose to issue bonds or shares,[e]
companies will typically enlist the services of an
investment bank to mediate between themselves and
the market.
A team from the investment bank often meets with the
company's senior managers to ensure their plans are
sound.
The bank then acts as an underwriter, and will arrange
for a network of brokers to sell the bonds or shares to
investors.
This second stage is usually done mostly through
computerized systems, though brokers will often
phone up their favored clients to advise them of the
opportunity.
Companies can avoid paying fees to investment banks
by using a direct public offering, though this is not a
common practice as it incurs other legal costs and can
take up considerable management time.
on the primary markets
When a company wants to raise money for long-term
investment, one of its first decisions is whether to do
so by issuing bonds or shares.
If it chooses shares, it avoids increasing its debt, and
in some cases the new shareholders may also provide
non monetary help, such as expertise or useful
contacts. On the other hand, a new issue of shares can
dilute the ownership rights of the existing
shareholders, and if they gain a controlling interest,
the new shareholders may even replace senior
managers.
From an investor's point of view, shares offer the
potential for higher returns and capital gains if the
company does well. Conversely, bonds are safer if the
company does poorly, as they are less prone to
severe falls in price, and in the event of bankruptcy,
bond owners are usually paid before shareholders.
When a company raises finance from the primary
market, the process is more likely to involve
face-to-face meetings than other capital market
transactions.
Whether they choose to issue bonds or shares,[e]
companies will typically enlist the services of an
investment bank to mediate between themselves and
the market.
A team from the investment bank often meets with the
company's senior managers to ensure their plans are
sound.
The bank then acts as an underwriter, and will arrange
for a network of brokers to sell the bonds or shares to
investors.
This second stage is usually done mostly through
computerized systems, though brokers will often
phone up their favored clients to advise them of the
opportunity.
Companies can avoid paying fees to investment banks
by using a direct public offering, though this is not a
common practice as it incurs other legal costs and can
take up considerable management time.
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Understanding Credit
Credit gives you the ability to purchase large items when you don't have the
money available. It involves borrowing money with the understanding that
you will pay back at a later time. Credit also helps build reputation as a
borrower.
The more disciplined you are at repaying those loans, the better credit
history you will build. Good examples of credit are Student and car loans,
as well as credit cards..
============
Different Types of Credit
It's important to be aware of the different types of credit so that you can be
sure that you match the right type of credit to your needs. There are three
main types of credit:
=============
Open-end Revolving credit (Secured and Unsecured)
■ Open-end 30-day credit
■ Closed-end credit
Open-end, Revolving Credit
The first type of credit is open-end revolving credit. This kind of credit
comes in two types: secured and unsecured.
===============
Open-end, Unsecured, Revolving Credit
This type of credit requires that you have a fixed credit limit and pay at least
the minimum due on your outstanding account balance each month. The
minimum payment will be a percentage of your card's total balance.
The interest rates associated with open-end credit can be quite high,
especially if you have a poor credit history or you don't shop around for the
best deal. Examples of this type of credit include bankcards like MasterCard
and Visa and many retail store charge cards.
============
Open-end, Secured, Revolving Credit
This type of open-end credit requires you to secure your credit card
purchases by keeping a certain amount of money in a saving account or by
buying a certificate of deposit for a certain amount.
Then, if you do not pay your account on time or if you go over your credit
limit, the credit card company can tap those funds. Often, people with poor
credit histories or no credit history at all must use a secured MasterCard or
Visa card until they can qualify for one that is unsecured.
===============
Open-end, 30 Day Credit
The second main type of credit is Open-end 30-day credit. This type of
credit usually comes with a high credit limit, but you must pay your
outstanding account balance in full each month.
The American Express card is the most common example of open-end, 30-
day credit.
============
Closed-end Credit
Lastly, the third type of credit is closed-end credit. When you are approved
for a mortgage, finance the purchase of a car, obtain a student loan, or
some similar purchase, you are using closed-end credit. n
Credit gives you the ability to purchase large items when you don't have the
money available. It involves borrowing money with the understanding that
you will pay back at a later time. Credit also helps build reputation as a
borrower.
The more disciplined you are at repaying those loans, the better credit
history you will build. Good examples of credit are Student and car loans,
as well as credit cards..
============
Different Types of Credit
It's important to be aware of the different types of credit so that you can be
sure that you match the right type of credit to your needs. There are three
main types of credit:
=============
Open-end Revolving credit (Secured and Unsecured)
■ Open-end 30-day credit
■ Closed-end credit
Open-end, Revolving Credit
The first type of credit is open-end revolving credit. This kind of credit
comes in two types: secured and unsecured.
===============
Open-end, Unsecured, Revolving Credit
This type of credit requires that you have a fixed credit limit and pay at least
the minimum due on your outstanding account balance each month. The
minimum payment will be a percentage of your card's total balance.
The interest rates associated with open-end credit can be quite high,
especially if you have a poor credit history or you don't shop around for the
best deal. Examples of this type of credit include bankcards like MasterCard
and Visa and many retail store charge cards.
============
Open-end, Secured, Revolving Credit
This type of open-end credit requires you to secure your credit card
purchases by keeping a certain amount of money in a saving account or by
buying a certificate of deposit for a certain amount.
Then, if you do not pay your account on time or if you go over your credit
limit, the credit card company can tap those funds. Often, people with poor
credit histories or no credit history at all must use a secured MasterCard or
Visa card until they can qualify for one that is unsecured.
===============
Open-end, 30 Day Credit
The second main type of credit is Open-end 30-day credit. This type of
credit usually comes with a high credit limit, but you must pay your
outstanding account balance in full each month.
The American Express card is the most common example of open-end, 30-
day credit.
============
Closed-end Credit
Lastly, the third type of credit is closed-end credit. When you are approved
for a mortgage, finance the purchase of a car, obtain a student loan, or
some similar purchase, you are using closed-end credit. n
Building Your Credit
The Four Steps of building credit
There are four basic steps to building your credit:
■ Develop a savings habit. Saving as much as you can is important, but
saving regularly is even more important. Get in the habit of regular
contributions to a savings account or money market fund --whichever
offers the best interest rate.
Take advantage of any direct deposit programs your employer may offer.
It's easier to get into the savings habit when the money is never in your
checking account, and goes directly into your savings account or
money market fund.
■ Review your Equifax, Experian and TransUnion credit histories and
get problems corrected. You do not want problems to get in the way of
building your credit. To get sample letters to dispute mistakes with the
Credit Bureaus, please click here.
■ After you have saved between $500 and $1,000 in savings and
resolved any problems in your credit records, apply for a MasterCard or
Visa. Shop around to find the card with the best terms of credit that you
can qualify for. If you can't get an unsecured MasterCard or Visa, apply
for a secured card.
==============
Credit and Saving: Four Good Reasons to Save Your Money
Another important part of rebuilding your credit is to save. Here are four
quick reasons why saving is so important:
■ If you lose your job tomorrow, the money in your savings account will
help you pay your bills.
■ If you have an unexpected large expense, you can use your savings to
pay it rather than having to use credit.
■ When you begin the credit rebuilding process you may need money in
savings in order to qualify for a secured MasterCard or Visa.
■ Creditors will feel more comfortable about extending credit to you
when you have a healthy balance in your savings account.
The Four Steps of building credit
There are four basic steps to building your credit:
■ Develop a savings habit. Saving as much as you can is important, but
saving regularly is even more important. Get in the habit of regular
contributions to a savings account or money market fund --whichever
offers the best interest rate.
Take advantage of any direct deposit programs your employer may offer.
It's easier to get into the savings habit when the money is never in your
checking account, and goes directly into your savings account or
money market fund.
■ Review your Equifax, Experian and TransUnion credit histories and
get problems corrected. You do not want problems to get in the way of
building your credit. To get sample letters to dispute mistakes with the
Credit Bureaus, please click here.
■ After you have saved between $500 and $1,000 in savings and
resolved any problems in your credit records, apply for a MasterCard or
Visa. Shop around to find the card with the best terms of credit that you
can qualify for. If you can't get an unsecured MasterCard or Visa, apply
for a secured card.
==============
Credit and Saving: Four Good Reasons to Save Your Money
Another important part of rebuilding your credit is to save. Here are four
quick reasons why saving is so important:
■ If you lose your job tomorrow, the money in your savings account will
help you pay your bills.
■ If you have an unexpected large expense, you can use your savings to
pay it rather than having to use credit.
■ When you begin the credit rebuilding process you may need money in
savings in order to qualify for a secured MasterCard or Visa.
■ Creditors will feel more comfortable about extending credit to you
when you have a healthy balance in your savings account.
Sovereign Wealth Funds –
A sovereign wealth fund (SWF) is a state-owned
investment fund investing in real and financial assets
such as stocks, bonds, real estate, precious metals, or in
alternative investments such as private equity fund or
hedge funds. Sovereign wealth funds invest globally.
Most SWFs are funded by revenues from commodity
exports or from foreign-exchange reserves held by the
central bank.
The accumulated funds may have their origin in, or may represent,
foreign currency deposits, gold, special drawing rights (SDRs) and
International Monetary Fund (IMF) reserve positions held by central
banks and monetary authorities, along with other national assets such
as pension investments, oil funds, or other industrial and financial
holdings.
These are assets of the sovereign nations that are typically held in
domestic and different reserve currencies (such as the dollar, euro,
pound, and yen).
Sovereign wealth funds have existed for more than a century, but since
2000, the number of sovereign wealth funds has increased dramatically.
A sovereign wealth fund (SWF) is a state-owned
investment fund investing in real and financial assets
such as stocks, bonds, real estate, precious metals, or in
alternative investments such as private equity fund or
hedge funds. Sovereign wealth funds invest globally.
Most SWFs are funded by revenues from commodity
exports or from foreign-exchange reserves held by the
central bank.
The accumulated funds may have their origin in, or may represent,
foreign currency deposits, gold, special drawing rights (SDRs) and
International Monetary Fund (IMF) reserve positions held by central
banks and monetary authorities, along with other national assets such
as pension investments, oil funds, or other industrial and financial
holdings.
These are assets of the sovereign nations that are typically held in
domestic and different reserve currencies (such as the dollar, euro,
pound, and yen).
Sovereign wealth funds have existed for more than a century, but since
2000, the number of sovereign wealth funds has increased dramatically.
| '' Economy & Finance Knowledge - Banking & Investing Knowledge - Business & Market Knowledge' At Knowledge Financial Group And Certainly By Femkonsa Capital Investment'' |
| ''Insurance Blog // Real Estate Blog // Business Blog / / Networkmarketing Blog // Entrepreneurship Blog / / Nursing Blog // Financial Blog // Social Media Blog / / Academy Blog // Knowledge Financial Group Blog / / Visionone Holding Blog // Vision-Goals&Dreams - |
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Personal Finance: Where are the safe places to put your money in time of financial crises, economic turmoil?
---------------
Finance: Fixed Income Security Investment: Types Of Fixed Income Investments..
---------------
Preferred Stocks vs. Common Stocks. = // Types of Preferred Stocks... Why Do Companies Issue Preferred Stock? =
LEARN MORE HERE...
--------------
'' How the Fed Keeps Track of Our Money Supply? // INVESTMENT'S SECRETS REVEALED, THE ABC's OF
INVESTMENTS...
-------------------
Femkonsa Capital: Best Index Funds vs Best ETF"s = Exchange Traded Funds.
LEARN MORE HERE...
-------------------
Millionaire Portfolio: Passive Income - Residual Income - Earned Income - Portfolio Income. HERE ARE MUCH MORE... = Research
& Learning -/
-----------------
Dividend Stocks: List Of Dividend Paying Companies. Quarterly monthly cash-flow = Return On Investment... LEARN MUCH MORE
HERE...
-----------------
Knowledge Center: 101 Ways to Make Money Online We often recommend earning some extra income on the side .
---------------
Entrepreneur: Business Ideas And Opportunities.
---------------
Economic: Different Types Of Market To Invest in...
--------------
Freeknowledge: Things to Know About Government Bonds & Municipal Bonds...
-------------
Resource Center: Different ways to protect your money…
What to do when we have a market panic, or economic uncertainty...
Last Will And Testament...
What Not to Include When Making a Will...
Ways to Avoid Probate... LEARN MORE HERE...
---------------
Finance: Fixed Income Security Investment: Types Of Fixed Income Investments..
---------------
Preferred Stocks vs. Common Stocks. = // Types of Preferred Stocks... Why Do Companies Issue Preferred Stock? =
LEARN MORE HERE...
--------------
'' How the Fed Keeps Track of Our Money Supply? // INVESTMENT'S SECRETS REVEALED, THE ABC's OF
INVESTMENTS...
-------------------
Femkonsa Capital: Best Index Funds vs Best ETF"s = Exchange Traded Funds.
LEARN MORE HERE...
-------------------
Millionaire Portfolio: Passive Income - Residual Income - Earned Income - Portfolio Income. HERE ARE MUCH MORE... = Research
& Learning -/
-----------------
Dividend Stocks: List Of Dividend Paying Companies. Quarterly monthly cash-flow = Return On Investment... LEARN MUCH MORE
HERE...
-----------------
Knowledge Center: 101 Ways to Make Money Online We often recommend earning some extra income on the side .
---------------
Entrepreneur: Business Ideas And Opportunities.
---------------
Economic: Different Types Of Market To Invest in...
--------------
Freeknowledge: Things to Know About Government Bonds & Municipal Bonds...
-------------
Resource Center: Different ways to protect your money…
What to do when we have a market panic, or economic uncertainty...
Last Will And Testament...
What Not to Include When Making a Will...
Ways to Avoid Probate... LEARN MORE HERE...