Extending Chapter 5: Banking

What You'll Do and Learn

• You'll learn how to assess the risks of money market investments that are offered by banks, brokerage firms, and other financial companies.
• You'll review Standard & Poor's credit ratings for companies that issue money market investments.

Introduction

In this activity you will learn more about money market investments and their risks.

Chapter Notes

Chapter 5 explained different types of vehicles available for savings--money that you do not want to risk losing. Savings instruments include savings accounts, certificates of deposit, and money market accounts. These instruments are insured by the Federal Deposit Insurance Corporation (FDIC) up to a total of $100,000 per depositor. This guarantee applies to the total amount of money that you deposit with a single bank in a bank savings account, a certificate of deposit, or a money market account. FDIC insurance does not apply to other types of investment vehicles, including money market mutual funds, which are discussed in Chapter 10.

If your total assets on deposit are less than $100,000, you may feel that you do not need to worry about the financial strength of your bank or its credit rating. However, if your bank is unable to meet its financial obligations, it may not be able to resolve its problems quickly. In the 1980s, many customers were shocked by the failure of several savings and loan associations. It's a good idea therefore to check on the soundness of any financial institution with which you do business. Independent companies, including Standard & Poor's, publish credit ratings of financial institutions.           

Site Notes

Standard & Poor's ratings services provide Issuer Credit Ratings on many financial institutions that issue investment vehicles such as Certificates of Deposit. These ratings assess the overall soundness of the financial institution. Standard & Poor's also rates many individual bond issues. These issue ratings are specific to a single bond issue rather than to the company issuing the bond.

Let Me Try

Go to the S&P site at www.standardandpoors.com and then print the Worksheet activity.

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