1. Arrange these assets from the most liquid to the least liquid: cash, old master paintings, U.S. savings bond, bonds of AT&T, passbook savings account at a bank; Kruggerands (a gold coin issued by South Africa); medical school training.
2. Medical school training is an example of what economists call
"human capital." Human capital theory says that we gain insights if
we value people as if they were machines. Assuming everything else is
equal, which machine is worth more, one that produces $100 of output
per hour or one that produces $1000?
Assuming everything else is equal, which machine is worth more, one that will last one year or one that will last ten years?
As a machine gets old, it may not produce as well as it did when it was newer. It may break down more frequently, and the quality of its output may fall. As this happens, its value will also fall. Similarly, as people get really old, the bodies and minds often do not work as well as they did when they were younger. The value of their human capital falls as well, and can fall to zero.
a) If you want to live beyond that age, how can you use financial markets to get ready for that point in life?
b) Financial markets are a modern invention--they hardly existed 250 years ago. How did your ancestors who lived 200 years ago deal with the decline in their human capital?
3. We may think of financial intermediaries as the heart of capitalism where profit and loss determine everything and today most financial intermediaries are designed to make profits for their capitalist owners. Although commercial banks have always been designed to make a profit for their owners, many other financial institutions were developed for different purposes (even though today most of them are fairly standard for-profit enterprises). See what you can find about those origins by doing an internet search for the four following sets of words: history "savings and loan associations"; history "credit unions"; history "savings banks"; and history "mutual insurance".
What was the purpose behind the development of each type of financial intermediary?
What is the point of setting up a mutual organization?