# 17.2 How households supply financial capital

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By the end of this section, you will be able to:
• Show the relationship between savers, banks, and borrowers
• Calculate bond yield
• Contrast bonds, stocks, mutual funds, and assets
• Explain the tradeoffs between return and risk

The ways in which firms would prefer to raise funds are only half the story of financial markets. The other half is what those households and individuals who supply funds desire, and how they perceive the available choices. The focus of our discussion now shifts from firms on the demand side of financial capital markets to households on the supply side of those markets. The mechanisms for saving available to households can be divided into several categories: deposits in bank accounts; bonds; stocks; money market mutual funds; stock and bond mutual funds; and housing and other tangible assets like owning gold. Each of these investments needs to be analyzed in terms of three factors: (1) the expected rate of return it will pay; (2) the risk that the return will be much lower or higher than expected; and (3) the liquidity    of the investment, which refers to how easily money or financial assets can be exchanged for a good or service. We will do this analysis as we discuss each of these investments in the sections below. First, however, we need to understand the difference between expected rate of return, risk, and actual rate of return.

## Expected rate of return, risk, and actual rate of return

The expected rate of return    refers to how much a project or an investment is expected to return to the investor, either in future interest payments, capital gains, or increased profitability. It is usually the average return over a period of time, usually in years or even decades. Risk measures the uncertainty of that project’s profitability. There are several types of risk, including default risk and interest rate risk. Default risk, as its name suggests, is the risk that the borrower fails to pay back the bond. Interest rate risk is the danger that you might buy a long term bond at a 6% interest rate right before market rates suddenly raise, so had you waited, you could have gotten a similar bond that paid 9%. A high-risk investment is one for which a wide range of potential payoffs is reasonably probable. A low-risk investment will have actual returns that are fairly close to its expected rate of return year after year. A high-risk investment will have actual returns that are much higher than the expected rate of return in some months or years and much lower in other months or years. The actual rate of return    refers to the total rate of return, including capital gains and interest paid on an investment at the end of a period of time.

## Bank accounts

An intermediary is one who stands between two other parties; for example, a person who arranges a blind date between two other people is one kind of intermediary. In financial capital markets, banks are an example of a financial intermediary    —that is, an institution that operates between a saver who deposits funds in a bank and a borrower who receives a loan from that bank. When a bank serves as a financial intermediary, unlike the situation with a couple on a blind date, the saver and the borrower never meet. In fact, it is not even possible to make direct connections between those who deposit funds in banks and those who borrow from banks, because all funds deposited end up in one big pool, which is then loaned out.

The exchange of produce and services among different countries.
Anamaya
the exchange of good & services across international boundaries
WILSON
Compare and contrast between Natural and Artificial Resources and their ultimate impacts in an economy. Give one example to support your discussion.
Exemple: Diamant or uranium, fer, calcaire
how does interest rate affect aggregate output
what is Keynesian theory
kelvin
need a curves for typical isoquost and isoquant
kelvin
what is isoquant
kelvin
isoquat is a curve shows differnt combinations of two inputs which can produce same level of output
Majid
examples of giffen goods
Getrude
then what isoquost
Peter
, if the price of an essential food staple, such as rice, rises it may mean that consumers have less money to buy more expensive foods, so they will actually be forced to buy more rice.
Peter
that's an example
Peter
majid Khan that's the wrong definition of isoquant
The
you are defining isocost
The
isocost curve is a locus of points that shows the different combinations of commodities purchased by a consumer with a fixed budget
The
The change in fiscal policy leads to an increased level of output and interest rates is because an increase in government expenses directly affects aggregate demand. A decline in taxes result in more disposable income, consequently leading to a rise in consumption expenditure.
Peter
dats for kelvin
Peter
dats d answer for the audio how does interest rate affect aggregate output
Peter
question not audio
Peter
u are right joker
Peter
what is journal entry?
Abel
explain the nature of economics
interpret micro economic issues
Matilda
ito ang dami ng producto na nais handa at kanyang ibenta ng isang prodyuser
i dont understand
Gaabshe
even I also don't understand ..this language.. vn I converse everybody say farzana ur language is not understood by all user? now no one there is question about it?
shaikh
he is saying that "this is the amount of product it wants to be ready and sells by a producer"
Aman
I Merr has knowledge,which is the economiccircuit role in a society
What is diminishing returns?
explain competitive demand
the demand that are compiting for sale. the buyer can substitute one for another good
Iftikhar
yg
Margarette
the demand where commodities fight for the market. in this type of demand, commodities can be substituted for the most suitable one subject to ( price, consumers choice, consumers income etc)
WILSON
Demand is said to be competitive when a commodity that is needed to satisfy wants in place of another similar goods. increase in price of a commodity X will result in increase in demand of the substitute (commmodity Y).
yusuf
examples of giffen goods are garri (cassava), maize
what is Public Finance?
it's basically the field of economics that deals with the government's involvement in the economy; from spending to maybe interest rate manipulation, etc.
Matthew
examples of giffen goods
Getrude
i want to get the solutions of problems how i get kindly give guidance
Syeda
hard work
Iftikhar
and the grace of God
The
knowledge skills
MUSA
Syeda Economics is difficult. No all fields are difficult
The
what is Keynesian
AKINOLA
Keynesian economics is the theory proposed by Keynes( an economist). He proposed to manipulate demand side factors to bring economy out of depression in 1930s.
Champro
whose totaly oppossid the government intervention and give importance to agreegad demand
Iftikhar
Good afternoon my fellow forum brothers and sisters
no just want to know true God
Suprim
Good afternoon!!
Martha
hey is there somebody single n young like me bcoz I'm looking for
Suprim
It is giving up a commodity to purchase another commodity
The
for example, when we have two commodities like chicken and turkey you can trade off of give up chicken to purchase turkey
The
that can also be called foregone goods
AKINOLA
it like opportunity cost
AKINOLA
Abdullahi
Do you transform into thesecourses, in french people?
I can just speak french andI can just speak french and no english
what is elastic
elastic is the change in to price and change in demand
ehtesham
Is the percentage change in quantity demand and quantity supply.
Robert
Or percentage change in price of demand and supply
Robert
Right
ehtesham
Robert Mensah you are explaining elasticity of demand
The
robert i think he talk about elastic releated to elasticity of price a proportionate change in price over qd
Iftikhar
can anyone explain what happrn her i don't understand anything
Brahim
is the percentage change in demand as price change
MUSA
sometimes price is elastic,inelastic
The
price elasticity is different from price being elastic
The
elasticity is not always the percentage change in demand as a result of changes in price. there's income elasticity and cross elasticity so it's not necessarily always price
The
elastic is when a change in price of a commodity results in a relatively a larger proportion change in the quantity demand of the commodity
Nancy
what is inelastic
price is said to be inelastic when it is less than 1
The
what is national income accounting
National income is the income earned by all factors of production..
Majid
So this benefits the workers or the businesses?
Neil
Like whose income are we talking about here
Neil
what is multiplier
Khalid
Good & services manufactured in a country with in one year is calld national income
Fani
incom earned by using of sources of production is national income while i dont know the accounting insuch
Iftikhar
neil and aisha can u explain the turm accounting in such question
Iftikhar
I think when we include accounting national income accounting is the measurement of total goods and services produced in an economy in a given period of time
The