Financial System

Financial System - Macroeconomics Saving Investment and the...

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Macroeconomics Saving, Investment and the Financial System Financial System: The group of institutions that help to match one person’s savings with another person’s investment Financial Markets: Financial institution through which savers can directly provide funds to borrowers (ex. stock market, bond market, student loans) Bond Market: borrowing directly from the public (debt finance) with 3 characteristics : 1) Length of time until matures 2) Credit risk associated with a bond a. If company goes bankrupt, you may lose your money 3) Tax Treatment a. No tax if you buy bonds from the government (municipal bonds) Types of Bonds: - Corporate Bonds - Government Agency - Municipal Bonds - Mortgage/Asset backed bonds Stock Market: Equity Finance - Stock: A claim to partial ownership in a firm - If a company runs into trouble, the bond holders are paid first – then the share- holders if they still have money - The stocks performance is linked to the company’s performance - Traded on stock exchanges (NYSE, NASDAQ. ..) Stock Index: A weighted average of all major stocks
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This note was uploaded on 05/01/2008 for the course ECON 2020 taught by Professor Kaplan,jul during the Spring '08 term at Colorado.

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Financial System - Macroeconomics Saving Investment and the...

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