chap05 - Chapter 5 Financial Markets & Institutions 1...

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1 Chapter 5 Financial Markets & Institutions
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2 Topics The Capital Allocation Process Financial markets Financial institutions Stock Markets and Returns Stock Market Efficiency
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3 The Capital Allocation Process In a well-functioning economy, capital flows efficiently from  those who supply capital to those who demand it. Suppliers of capital – individuals and institutions with  “excess funds”.  These groups are saving money and  looking for a rate of return on their investment. Demanders or users of capital – individuals and institutions  who need to raise funds to finance their investment  opportunities.  These groups are willing to pay a rate of  return on the capital they borrow.
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4 How is capital transferred between savers and borrowers? Direct transfers Investment banking  house Financial  intermediaries
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5 Direct Transfer from saver-to- borrower Savers Borrowers Savers Borrowers Funds Claims
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6 Indirect Transfer through Investment Banking House Savers Borrowers   Investment Banks Funds Primary Claims Funds Primary Claims Primary Claims Primary Claims
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Indirect Transfer through Financial Intermediary(FI) Savers Borrowers Financial Inter- mediary:
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This note was uploaded on 02/27/2009 for the course FIN 221 taught by Professor Dyer during the Fall '08 term at University of Illinois at Urbana–Champaign.

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chap05 - Chapter 5 Financial Markets & Institutions 1...

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