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Unformatted text preview: Chapter 5: Financial Markets and Institutions Learning Objectives 103 Chapter 5 Financial Markets and Institutions Learning Objectives After reading this chapter, students should be able to: Describe three ways in which the transfer of capital takes place. List some of the many different types of financial markets, and identify several recent trends taking place in the financial markets. Identify some of the most important money and capital market instruments, and list the characteristics of each. Compare and contrast major financial institutions. Distinguish between the two basic types of stock markets. Identify the three classifications of stock market transactions. Read stock quotations from a variety of sources/publications. Briefly explain the Efficient Markets Hypothesis (EMH), identify the three levels of efficiency, and discuss the implications of market efficiency. Briefly discuss behavioral finance and its impact on the support for EMH. 104 Integrated Case Chapter 5: Financial Markets and Institutions Answers to End-of-Chapter Questions 5-1 The prices of goods and services must cover their costs. Costs include labor, materials, and capital. Capital costs to a borrower include a return to the saver who supplied the capital, plus a mark-up (called a spread) for the financial intermediary that brings the saver and the borrower together. The more efficient the financial system, the lower the costs of intermediation, the lower the costs to the borrower, and, hence, the lower the prices of goods and services to consumers. 5-2 In a well-functioning economy, capital will flow efficiently from those who supply capital to those who demand it. This transfer of capital can take place in three different ways: 1. Direct transfers of money and securities occur when a business sells its stocks or bonds directly to savers, without going through any type of financial institution. The business delivers its securities to savers, who in turn give the firm the money it needs....
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