financial 1.For institutions, the key suppliers of funds and the key demanders of funds are individuals, businesses, and governments. 2.In general, individuals are net suppliers of funds, while businesses and governments are net demanders of funds. 3. Financial markets provide a mechanism that allows suppliers of funds and demanders of funds to transact business. 4. The primary market is the financial market in which securities are initially issued; the only market in which the issuer is directly involved in the transaction. Secondary markets are financial markets in which preowned securities (those that are not new issues) are traded. 5. Financial institutions actively participate in the financial markets as both suppliers and demanders of funds. 6. Broker markets are securities exchanges on which the two sides of a transaction, the buyer and seller, are brought together to trade securities. Dealer markets are markets in which the buyer and seller are not brought together directly but instead have their orders executed by securities dealers that "make markets" in the given security. The key difference between broker and dealer markets is a technical point dealing with the way trades are executed. When a trade occurs in a broker market, the buyer and the seller are brought together. when But a trade occurs in a dealer market, the buyer and the seller are never brought together. Instead, market makers execute the buy/sell orders. 7. Securitization is the process of pooling mortgages or other types of loans and then selling claims or securities against that pool in a secondary market. 8. Banks began to tighten their lending standards and reduced the quantity of loans they made. Corporations who had relied on the money market as a source of shortterm funding found that they could on longer raise money in this market or could do so only at extraordinarily high rates. As a consequence, businesses began to hoard cash and cut back on expenditures, and economic activity contracted. GDP declined and unemployment rate increased. 9. The Securities Act of 1933 regulates the sale of securities to the public via the primary market. The Securities Exchange Act of 1934 regulates the trading of securities such as stocks and bonds in the secondary market. 10. Ordinary income is income earned through the sale of a firm's goods or services. A capital gain is the amount by which the sale price of an asset exceeds the asset's purchase price. Marginal tax rate represents the rate at which additional income is taxed. The average tax rate is the firm's taxes divided by taxable income.