Chapter 02 - 5-1CHAPTER 2Financial Markets and...

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Unformatted text preview: 5-1CHAPTER 2Financial Markets and Institutions5-2Topics CoveredThe Capital Allocation ProcessFinancial marketsFinancial institutionsStock Markets and Returns5-3The Capital Allocation ProcessIn a well-functioning economy, capital flows efficiently from those who supply capital to those who demand it.Suppliers of capital individuals and institutions with excess funds. These groups are saving money and looking for a rate of return on their investment.Demanders or users of capital individuals and institutions who need to raise funds to finance their investment opportunities. These groups are willing to pay a rate of return on the capital they borrow.5-4How is capital transferred between savers and borrowers?Direct transfersInvestment banking houseFinancial intermediariesAn extensive set of markets and financial institutions facilitates the efficient allocation of capital5-5What is a market?A market is a venue where goods and services are exchanged.A financial market is a place where individuals and organizations wanting to borrow funds are brought together with those having a surplus of funds.5-6Types of financial marketsPhysical assets vs. Financial assetsMoney vs. CapitalMoney Market includes Treasury bills, commercial paper, bankers acceptance, repurchase agreements, municipal notes, certificate of deposit...
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Chapter 02 - 5-1CHAPTER 2Financial Markets and...

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