1. Explain the differences between saving and investment as defined by macro-economist. Give one example that represents saving and one example that represents investment
Investment and savings are two terms that are used mostly interchangeably. Investments are the ones in which a person buy any new capital, with the aim to generate any profit in return. Savings are the part of a person’s income which is not used in the process of consumption. Savings are created with the purpose to complete short term targets or goals or used on urgent basis when needed. Investments are created to give return and make capital formation. In savings the risks of loss is negligible whereas in investments the risk is very high. For example, my consumption is less then my income, so I saved a part of my income every month to buy some capital. It is called savings rather than investment. Similarly, if I took a loan from a bank and build a house with the loan, then it is my investment to my country, as a whole the savings and investments are same for a complete economy. S = I. But it is true in the scenario of economy and not in the scenario of per household.
2. List three characteristics of a bond that would make its interest rate higher than otherwise. Briefly explain each of them
The main and primary characteristic of a bond is its face value. It is the main principle portion of loan in which the amount returned to the issuer on the day of its maturity. The second characteristic is the maturity which refers to the day when the bond comes due. The maturity level depends upon its duration issuance and the due date. The bonds with short maturity duration called notes. The last characteristic is the coupon in which the investors clipped the redeem pattern due to their interest rate or payments. The interest payment mostly called the coupons.