Assignment 1: Financial Concepts
Your niece just started her college career with a major in economics. She is curious as to the interrelationship between the success of an economy and the financial markets, concepts, and financial institutions. Accordingly, she has developed a list of questions addressing these issues and has asked that you explain the ideas.
1. What are the financial markets and what purposes do they serve?
2. What are financial intermediaries? How do these intermediaries function in the economy?
3. What is a federal government budget deficit? What is the national debt? How does a budget deficit affect the economy?
She is also curious about the time value of money concepts. Specifically, she has the following questions about these concepts:
4. Why are consumers considered to be risk averse? What methods could used to deal with risk?
5. It has been said that a dollar received today is worth more than a dollar received tomorrow. What does this mean and what is the significance to the economy?
6. What is the difference between the present value of a future sum of money and the future value of a present sum of money? What is the significance of these concepts to economics?
7. If you deposited $1,000 in an account paying 6% interest compounded annually, how long would it take to double?