Professional Documents
Culture Documents
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Intermediaries, instruments, and regulations.
Financial markets: bond and stock markets
Financial intermediaries: banks, insurance
companies, pension funds
Moving funds from those who have a surplus of
funds to those who have a shortage of funds.
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p
Financial markets channel funds: surplus of
funds to shortage of funds.
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áecurities are assets for the person who buy
them but liabilities (IOU, debts) that (sell, issue)
them.
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p
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Using financial markets for:
increasing/improving production, personal uses
(house), therefore:
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: can obtain funds
in financial markets in two ways:
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Maturity: the time that a debt instrument
expires.
If maturity is less than a year: áhort-Term debt
instrument
if the maturity is ten years or longer: Long-Term
debt instrument
in between: Intermediate-Term.
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[
such as common stock, which are claims to share
in the net income and assets of a business.
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cn equity holder is a residual claimant
claimant:
the corporation must pay all its debt holders
before it pays its equity holders
(disadvantage of owing a firm¶s equity).
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V
V
a financial market in which new
issues of a security (bond or stock) are sold to initial
buyers.
á
a financial market in which
securities that have been previously issued are resold.
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c corporation acquires new funds only when its
securities are first sold in the primary market.
áecondary markets serve 2 functions:
Easier to sell financial instruments to raise
cash; they make financial instrument more
liquid
Determine the price of the security (pay for the
issuing corporation no more than what you think
it will be sold at the secondary market).
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(to organize secondary markets)
Exchanges; a central location where buyers
and sellers of securities meet.
Over the counter market (OTC): dealers in
different locations with inventory of securities
stand ready to buy and sell securities ³over the
counter´ to anyone accept their price.
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depends on the
maturity of the securities traded in each market;
:
only short-term debt instrument are traded.
m
:
the market in which longer term debt and equity
instrument are traded.
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áhort-term to
maturitya least price fluctuations, least risky
investments.
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m
átocks, Mortgages, Corporate bonds, Uá
government securities, Uá government agency
securities, átate and Local government bonds,
Consumer and Bank commercial loans.
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- Transaction Costs: economies of scale
- csymmetric information:
cdverse áelection and Moral Hazard.
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ÿ
c u
- Commercial Banks.
- áavings and Loan cssociation
- Mutual áavings Banks
- Credit Unions.
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ÿ
[ m
á
- Life insurance companies
- Fire and Casualty insurance companies.
- Pension funds and government retirement
funds.
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ÿ
m
- Finance companies
- Mutual funds
- Money market mutual funds.
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]
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]
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