Consider a typical individual who owns the following financial instruments: A life insurance policy for $250,000; a certificate of deposit for $10,000; homeowner's and auto insurance policies; $50,000 in a mutual fund, and $150,000 in her pension fund at work. Which of these are instruments used primarily as stores of value and which are being used to transfer risk?
What will be an ideal response?
The life insurance policy, the homeowner and auto insurance policies are instruments being used to primarily transfer risk. The cost of an untimely death or loss resulting from an auto accident or damage to her house is a risk the individual prefers to transfer to someone else. The certificate of deposit, the balances in her mutual fund and pension are instruments that are serving primarily as stores of value. In these instruments wealth is being accumulated and stored for use at a later time.
You might also like to view...
Refer to Table 9-12. Prior to trade, what was the opportunity cost to produce 1 sword in Morocco?
A) 1/2 of a belt B) 1 belt C) 1.5 belts D) 2 belts
If an increase in the price of a product from $100 to $200 per unit leads to a decrease in the quantity demanded from 10 to 8 units, then demand is
a. elastic b. inelastic c. unit elastic d. 0 e. inferior
In 1981, in San Francisco Solano, Argentina, about 1,800 families took over a piece of wasteland. The government was able to deed 60 percent of this land to some families while the remaining part could not be deeded. The resulting houses varied greatly, based on whether the residents received title. Those who received title also behaved differently, having fewer children, and the children
experienced more education and better health. This is an example of the results from: a. scarcity. b. economic growth. c. economic freedom. d. private property rights. e. improved quality of life.
If a nation has an absolute advantage in the production of some commodity, it
a. can gain only if it has a comparative advantage in the commodity. b. may still gain from trade in the commodity. c. cannot gain from trade in the commodity. d. cannot gain unless it has an absolute advantage in every other commodity.