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Chapter 2
Financial Markets Road to success with this chapter material
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Chapter 2
Financial Markets and Institutions
Alan J. Marcus
McGraw Hill/Irwin
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Topics Covered
The Importance of Financial Markets and Institutions The Flow of Savings to Corporations Functions of Financial Markets and of Financial Intermediaries Value Maximization and the Cost of Capital
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Financial Markets
Money
Primary
Markets
OTC
Markets
Secondary
Markets
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Financial Markets
Financing Decision
Source of Funds Capital Capital Structure Money Markets Euros
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Financial Markets
Issue Securities
Company
Cash Reinvested
Investors
Cash
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Financial Markets
Financial markets Stock markets Fixed-income markets Money markets Markets for Commodities Foreign exchange Derivatives
Reinvestment
Investors worldwide
Financial Intermediaries
Mutual Funds Pension funds Financial Institutions Banks Insurance companies
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Financial Institutions
Company
Obligations
Funds
Intermediaries
Banks Insurance Cos. Brokerage Firms
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Financial Institutions
Intermediaries
Obligations
Funds
Investors
Depositors Policyholders Investors
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Financial Markets
$ Bank of America
Sells shares
$ Explorer Fund
Issues shares
Investors
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Financial Markets
Company Banks Insurance Cos.
Obligations Funds
Intermediary
Obligations Funds
Brokerage Firms
Depositors Policyholders Investors Investor
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Financial Markets
Company
Loan $2.5 mil
Banks
Intermediary
Deposits Cash
Depositors
Investor
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Financial Markets
Company
Issue Debt $2.5 mil
Insurance Company
Intermediary
Sell policies Cash
Policyholders
Investor
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12.3 14.2
9.5 28.1
5.4 20.6 10
Households Rest of world Banks Insurance Cos Pension Funds Mutual Funds Other
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U.S. Financing
Information Provided by Financial Markets
Commodity prices Interest rates Company values
Interest rates on 30-year corporate bonds, February 2008.
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Value Maximization
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Web Resources