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Investment, Savings, and the Financial System definitions

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  • Economic Investment
    Allocation of resources by firms toward assets like factories or technology to boost future production.
  • Financial Investment
    Purchase of assets such as stocks, bonds, or bank accounts, typically by households, to grow personal wealth.
  • Savings
    Portion of income not spent on current consumption, often set aside by households for future use or investment.
  • Financial System
    Network connecting savers and borrowers, enabling funds to flow from households to firms for investment.
  • Financial Market
    Platform where funds move directly from savers to borrowers, often through securities like stocks or bonds.
  • Financial Intermediary
    Institution, such as a bank or mutual fund, that channels funds from savers to borrowers indirectly.
  • Securities
    Tradable financial assets, including stocks and bonds, used by firms to raise funds from investors.
  • Liquidity
    Ease with which an asset can be quickly converted into cash without significant loss of value.
  • Diversification
    Strategy of spreading investments across various assets to reduce exposure to financial risk.
  • Transaction Costs
    Expenses incurred when buying or selling assets, which the financial system aims to minimize.
  • Financial Risk
    Potential for loss in value of investments due to uncertainty or market fluctuations.
  • Interest Rate
    Return earned on savings or paid on borrowed funds, often seen as a percentage of the principal.
  • Mutual Fund
    Investment vehicle pooling money from many investors to purchase a diversified portfolio of assets.
  • Credit Union
    Member-owned financial cooperative providing savings and loan services, acting as an intermediary.
  • Economic Growth
    Sustained increase in a nation’s output and productive capacity over time, driven by investment.