ch. 1 - 2008-10-01 Financial Markets Markets in which funds...

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05:34 Financial Markets Markets in which funds are transferred from people who have an excess of  available funds to people who have a shortage. Move funds from people who save to people who have productive investment  opportunities. Have direct effect on individuals wealth, behavior of businesses, and efficiency of  the economy. Examples: Bond market, Stock market, Foreign Exchange market Security     Also called a  financial instrument Is a claim on the issuer’s future income or assets Assets - any financial claim or piece of property that is subject to ownership Bond Market A debt security that promises to make payments periodically for a specified  period of time. Enables corporations and governments to borrow to finance their activities. Where interest rates are determined. Interest Rates     The cost of borrowing or the price paid for the rental of funds. Have an overall effect on the health of the economy by affecting: Consumers’ willingness to spend or save  Businesses’ investment decisions.  High interest rates could     : Discourage you from investments  because the cost of financing it would be to  high. (cost of taking out a loan high)
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Encourage you to save  because you can earn more interest income by putting  aside some of your earnings as savings. Cause a corporation to postpone building a new plant that would provide new  jobs. Different interest rates have a tendency to move in unison Changes in interest rates have important effects on individuals, financial  institutions, business, and the overall economy. Stock Market Where claims on the earnings of corporations (shares of stock) are traded. The  most widely followed financial market  in almost every country. It is extremely volatile; has a major effect on peoples wealth: “a place where  people can get rich—or poor—quickly.” Common Stock (Stock     )— represents a share of ownership in a corporation.  It is  a security that is a claim on the earnings and assets of the corporation. Issuing stock and selling it to the public is a way a corporation can raise funds to  finance their activities. Stock market is an important factor in business investment decisions because the  price of shares affects the amount of funds that can be raised by selling newly  issued stock to finance investment spending. Higher prices for firm’s shares, raises a larger amount of funds, which can be 
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This note was uploaded on 10/01/2008 for the course ECON 2035 taught by Professor Stahl during the Spring '08 term at LSU.

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ch. 1 - 2008-10-01 Financial Markets Markets in which funds...

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