s02

s02 - THE DOMESTIC AND INTERNATIONAL FINANCIAL MARKETPLACE...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 2 THE DOMESTIC AND INTERNATIONAL FINANCIAL MARKETPLACE ANSWERS TO QUESTIONS: 1. The saving-investment cycle consists of net savers (surplus spending units) transferring funds to net investors (deficit spending units). The transfer can be made through either financial middlemen or financial intermediaries. For a given time period, actual savings equals actual investment. 2. Financial middlemen and intermediaries facilitate the transfer of funds during the saving-investment cycle. When financial middlemen aid in the transfer of funds, primary claims are issued to surplus spending units. When financial intermediaries are involved in the funds transfer process, secondary claims are issued to surplus spending units. These secondary claims are normally less risky than the primary claims received by the financial intermediaries. 3. Money markets deal in short-term securities having maturities of approximately one year or less, whereas capital markets deal in longer-term securities having maturities greater than one year. Primary markets are financial markets in which new securities are bought and sold for the first time, whereas secondary markets are financial markets in which existing securities are offered for resale. 4. Financial intermediaries: • Commercial banks - Sources of funds are demand and time deposits. Uses of these funds are loans to individuals, businesses (short-term credit and term loans), and governments. • Thrift institutions - These include savings and loan associations, mutual savings banks, and credit unions. Sources of funds are demand and time deposits. Savings and loan associations and mutual savings banks invest most of their funds in home mortgages and credit unions are engaged primarily in consumer loans. • Investment companies - These include mutual funds and real estate investment trusts (REIT's). Mutual funds pool the funds of many savers and invest in financial assets, such as stocks, bonds, and money market instruments. REIT's invest in commercial and residential real estate.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern