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Investing 101 Lesson 3 Economic Influences Review!? Again! What is a bond? What is a coupon? How big is the bond market? How long is the life of a bond? What is one risk of purchasing a bond? Does anyone have anything to share? Stock update? Anything special happening in life? Anyone have any questions on unrelated random financial topics? Main Teaching Points Supply and Demand GDP Consumer/Producer surplus and reservation price Interest rates Exchange rates Adam Smith Author : Wealth of Nations Theorizes of an invisible hand which drives the market The self interest of people will create an efficient market. Public goods need be provided by the state (i.e. Defense, Policing etc) Supply and Demand GDP All goods and services PRODUCED and sold in a fiscal year. Does NOT include second hand goods. Measurement of growth. GNP≠GDP Good To Know Interest Rates! Why do they exist??? Why do they change?? What do they effect when they change? BREAK! Pick someone you have not spoken to yet and explain something you learned to them. 10 min break. Interest Rates A product of the governments need to change the amount of money in the system. Governments need to help and curb the growth of GDP. How the Gov’t controls inflation. Bank Of Canada Banker for the Gov’t of Canada Lender of last resort for chartered banks Excellent place to rob Interest rates and the Money Multiplier Banks Financial intermediaries Between the users and loaners of funds Make money many ways, mainly in loans. Levered borrowing. Why Do Rates Matter? Changes in rates change things: The cost of borrowing for new investment and growth of business. The PV of Bonds. The amount Loanable money supply. The VALUE of our currency…… Exchange Rates The rate at which one currency can be exchanged for another. First you buy the money “Boom Boom” then you buy the goods “Boom Boom) Fiscal Policy & Monetary Policy Monetary Policy deals with the changing of interest rates and control of money supply. Controlled by the Director of the BOC Fiscal Policy deals with the taxation of individuals and businesses . Controlled by the Finance Minister. Questions? Extra Facts about the BOC Balance of Payments Trade Deficit. US interest rates