ECON 2035 Ch 1 Notes.docx - ECON 2035 Chapter 1 Notes Three Major Components of the Financial System o Financial Assets o Financial Institutions o The

ECON 2035 Ch 1 Notes.docx - ECON 2035 Chapter 1 Notes Three...

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ECON 2035 Chapter 1 NotesThree Major Components of the Financial SystemoFinancial AssetsoFinancial InstitutionsoThe Federal Reserve (the Fed) and other financial regulators Financial AssetsoKey component: securitiesoSecurity – financial asset that can be bought and sold in a financial marketoFinancial Markets – places or channels for buying or selling stocks, bonds, and other securitieso5 Categories of Financial AssetsMoneyAnything that is generally accepted in payment for goods and services or to pay off debtsMoney Supply – the total quantity of money in the economyStocksFinancial securities that represent partial ownership of afirmAlso called equitiesDividends – payments that a corporation makes to its shareholders after keeping some of its profits BondsFinancial security issued by a corporation or a government that represents a promise to repay a fixed amount of moneyInterest Rate – the cost of borrowing funds (or the payment for lending funds) usually expressed as a percentage of the amount borrowed Foreign ExchangeRefers to units of foreign currencyHave to exchange domestic currency for foreign

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