Read in the Hubbard/O’Brien/Rafferty text Ch. 3, pp. 64-74.
Please bring your laptop or ipad to class on Thursday, as we will do several data searches. If you don’t have one, you can work with another student who does.
Chapter 3, The U.S. Financial System
1. The Wonderful World of Credit. In 2012, briefly what was the primary reason for the increase in car sales? Next, how specifically did the tightening of lending requirements during the financial crisis hurt small businesses?
Households were now able to get loans again.
If you don’t have the capital to start a business normally you use bank loans, and that was not a possibility during the financial crisis.
An Overview of the Financial System
2. Financial Markets and Financial Intermediaries. Tell me one thing from this section that you learned. Next, from Table 3.1 pick one type of financial intermediary other than commercial banks and summarize what they do.
Assets are anything of value owned by a person.
Investment Bank- a company that provides advice and services issuing new securities.
3. Making the Connection: The Controversial World of Subprime Lending. During the mid-1990s, why did banks and other lenders begin to make loans to subprime borrowers? During the 2007-2009 recession, why did banks and other lenders stop making loans to subprime borrowers?
Because they were able to up their profits by increasing the total amount that they have to loan out.
Because so many of the subprime lenders defaulted on their loans.
4. Stocks, Bonds, and Stock Market Indexes. Tell me something from this section that you learned.
The S&P 500 is not the largest market in the world.
5. Making the Connection: Investing in the Worldwide Stock Market. Tell me something that you learned.
The two biggest stock markets are in the US. 6. Services Provided by the Financial System. Briefly, how does the financial system provide risk sharing? Briefly, how does it provide liquidity?
Allows sharers to spread financial investments over many financial areas.
Can quickly sell stocks and bonds bought from corporations.
7. Banking & Securitization. What is securitization? Today, what