Question

GENERAL BUSINESS COURSE QUESTION:

Joe and Jill were talking about the role played by the Federal Reserve System in the United States. Joe seemed to be quite well informed about the functions and activities of our central bank. "You see, Jill, the Fed is the main guardian of our nation's economic stability," Joe declared. "In America, we don't want inflation and we don't want recession. To stretch the situation just a bit, we are frightened, absolutely terrified, by thoughts of hyperinflation and depression. So, the Fed maintains the right to alter the situation and protect us from these two monsters. And you ask, how they do that? The answer is the discount rate. That is the device that the Federal Reserve System uses to keep us safe."

Jill was enjoying listening to her friend explain it all. Joe continued, "Now the discount rate is the interest rate that the twelve Federal Reserve Banks around the country charge their member banks on a loan. So, when the discount rate goes up, all interest rates tend to go up. And, happy to say, when interest rates go up all over America, this tends to slow down any inflationary tendencies." Jill asked, "Does the Fed have other tools for stopping inflation?" "No," said Joe.

6) In which type of fund do you think you would invest, a mutual fund or an exchange-traded fund? What is the difference and why would you favor one over the other?

Answer 1

I will choose ETF over Mutual fund. Why? I will explain it below. First, I am explaining what mutual funds and exchange-traded funds is.

Mutual Funds vs. Exchange-traded fund
Mutual funds and exchange-traded funds (ETFs) area unit each created from the construct of pooled fund finance, usually adhering to a passive, indexed strategy that tries to trace or replicate representative benchmark indices. Pooled funds bundle securities along to supply investors the advantage of a varied portfolio. The pooled fund construct primarily offers diversification and comes with economies of scale, permitting managers to decrease group action prices through giant heap share transactions with pooled investment capital.
KEY TAKEAWAYS
• Both mutual funds and ETFs provide investors pooled investment product choices.
• Mutual funds have a lot of complicated structuring than ETFs with varied share categories and charges.
• ETFs generally attractiveness to investors as a result of they track market indexes, mutual funds attractiveness as a result of they provide a large choice of actively managed funds.
• ETFs actively trade throughout the mercantilism day whereas open-end fund trades shut at the tip of the mercantilism day.
• Mutual funds area unit actively managed, and ETFs area unit passively managed investment choices.

why I am selecting ETF over Mutual fund? Let me explain the reason as follow.

There’s no clear-cut declare each capitalist beneath all circumstances; however ETFs have distinct blessings that create them higher than mutual funds in many necessary respects.

Tax advantages
The biggest advantage Associate in Nursing ETF has over an open-end fund is taxation. because of their construction, ETFs incur capital gains taxes only you sell them. Mutual funds incur capital gains taxes because the shares among the fund area unit listed throughout the lifetime of the investment. affirmative ETFs over mutual funds will lower your bill from your long-run investments
Simplicity of ETFs
When you purchase or sell Associate in Nursing ETF, you are doing therefore at one value with one straightforward group action. you're continually solely one trade off from gap or closing an edge.
While gap Associate in Nursing account or redeeming shares in an exceedingly open-end fund is not generally a very difficult method, it will take a lot of effort than an easy trade. you've got to decision client service, fill out some work, so wait a touch whereas for the group action to travel through.
Cost-Effectiveness
As well as being simple investments, ETFs also are cheaper than mutual funds. ETFs area unit usually, although not continually, passively managed, that means they are established to trace the come of a selected benchmark. there isn't any quality choice method concerned. Since mutual funds area unit usually actively managed, they are usually subject to higher management fees.
Investing Flexibility
With a lot of and a lot of ETFs being discharged all the time, investors have new choices to focus on a selected mercantilism strategy. artifact ETFs, style ETFs, country ETFs, even inverse ETFs. There are such a big amount of styles of ETFs for investors, closely trailing the performance of a particular index or achieving a selected monetary goal is also a lot of simply possible than with mutual funds, although it ought to be noted there are many alternative styles of those furthermore.
Transferability of ETFs
Whenever Associate in Nursing capitalist moves a managed portfolio to a special fund, complications will arise with mutual funds. frequently the fund positions got to be closed out before a transfer will happen. which will be a serious headache for investors, UN agency area unit forced to create unwanted or untimely trades that might lead to losses.
Conducting Due Diligence
As with any investment, you must totally analysis any ETF before committing your cash thereto. Conduct your due diligence, as well as observance however the fund performs beneath totally different market conditions and taking a glance at the assets command within the funds. If you've got any queries or considerations, confirm you consult a monetary authority or another monetary business skilled.