Chapter 05 - CHAPTER 5 Financial Markets and Institutions...

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    5-1 CHAPTER 5 Financial Markets and Institutions The Capital Allocation Process Financial markets Financial institutions Stock Markets and Returns Stock Market Efficiency
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    5-2 The Capital Allocation  Process In 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.
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    5-3 How is capital transferred between  savers and borrowers? Direct transfers Investment banking  house Financial  intermediaries
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    5-4 What 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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    5-5 Types of financial markets Physical assets vs. Financial assets Money vs. Capital Primary vs. Secondary Spot vs. Futures Public vs. Private
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    5-6 The importance of financial  markets Well-functioning financial markets facilitate the flow  of capital from investors to the users of capital. Markets provide savers with returns on their money  saved/invested, which provides them money in the future. Markets provide users of capital with the necessary funds 
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Chapter 05 - CHAPTER 5 Financial Markets and Institutions...

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