Chapter 3 - Chapter 3 Financial Instruments, Financial...

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Chapter 3 Financial Instruments, Financial Markets, and Financial Instruments Indirect finance- an institution like a bank stands between the lender and the borrower, borrowing from the lender and them providing the funds to the borrower Direct finance- borrowers sell securities directly to the lenders in the financial markets I. Financial instruments a. Written legal obligation of one party to transfer something of value to another party at some future date b. Government enforces the obligation, without enforceability financial instruments would not exist c. Specifies certain conditions under which a payment will be made d. Uses of financial instruments Stocks, loans, insurance Can act as a means of payment, and can also be stores of value Allow for transfer of risk e. Characteristics of financial instruments: standardization and information Complexity of costly Use standardized financial instruments to overcome the potential costs of complexity Handles the problem of asymmetric information which comes from
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This note was uploaded on 05/10/2010 for the course ECO 3223 taught by Professor Staff during the Spring '08 term at University of Central Florida.

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Chapter 3 - Chapter 3 Financial Instruments, Financial...

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