Chapter 6, Problem 14AA

To determine

To evaluate: the two advantages of United States savings bonds.

Explanation of Solution

A savings bond is a particular type of government bond, a bond issued by a government institution to raise funds from the public for the financing of its development projects and other economic management activities required. If the government is selling bonds, it actually receives a loan from the public that it expects to repay at some fixed date in the future. The government is making interest payments to its bondholders as insurance for the funds it provides.

Two main advantages of the United States savings bonds are:

 1. Guaranteed: Both U.S. savings bonds and bank savings accounts that are Federal Deposit Insurance Corp. members are among the best of all investments. The principal and the interest in U.S. savings bonds were assured by the U.S. government's full credit and faith.

 2. Lower risk and lower interest: Primary factors that decide interest rates are the risk associated with the investment and the amount of time you are able to keep our money on deposit. Since the risk associated in both savings accounts and U.S. savings bonds is relatively small, the interest rate charged on these investments is small. U.S. savings bonds usually provide a higher interest rate than savings accounts, partially because they are assets in the longer term.

Economics Concept Introduction

Introduction: The money market refers to the very short-term trade of securities in debts. This includes large-volume trades among traders and banks at the wholesale level. This includes joint money-market funds owned by individual investors at the retail stage, and money-market accounts opened by bank clients.