Chapter 2-Financial Markets

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

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Unformatted text preview: 5-1CHAPTER 5Financial Markets and InstitutionsThe Capital Allocation The Capital Allocation ProcessProcessFinancial marketsFinancial marketsFinancial institutionsFinancial institutionsStock Markets and ReturnsStock Markets and ReturnsStock Market EfficiencyStock Market Efficiency5-2Learning ObjectivesDescribe three ways in which the transfer of capital takes place.List some of the many different types of financial markets, and identify several recent trends taking place in the financial markets.Identify some of the most important money and capital market instruments, and list the characteristics of each.Compare and contrast major financial institutions.Distinguish between the two basic types of stock markets.Identify the three classifications of stock market transactions.Read stock quotations from a variety of sources/publications.Briefly explain the Efficient Markets Hypothesis (EMH), identify the three levels of efficiency, and discuss the implications of market efficiency.5-3The 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 intermediaries5-5Capital Transfer FormsDirect Transfers of money and securitiesDirect Transfers of money and securities. This takes place when a business sells its stocks or bonds directly to savers, without going to any type of financial institution.Indirect Transfers Indirect Transfers through an investment banking house. Company sells securities to the Investment bank, which in turn sells these securities to investors.5-6Capital Transfer FormsFinancial Intermediary-Financial Intermediary-The intermediary obtain funds from savers in exchange for its own securities. The intermediary uses this money to buy and hold businesses securities.5-7Diagram of the Capital Formation Process5-8What 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....
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Chapter 2-Financial Markets - 5-1CHAPTER 5Financial Markets...

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