FINA Text BK - MODULE 02 - Mkts Rates + Fisher

FINA Text BK - MODULE 02 - Mkts Rates + Fisher - MODULE 02...

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02: Page 1 of 31 Secondary market Financial resale market where investors trade previously issued securities Primary market Any place the first transaction in a security occurs; new - issues market ; contrast to secondary market MODULE 02 FINANCIAL MARKETS AND INTEREST RATES When companies seek financing, they often use the services of financial intermediaries to help them issue securities in the money and capital markets. This module introduces these sources of funds to you. The module first discusses the two principal markets in which debt securities trade. These are the money market and capital market. Distinguish in your study of the financial markets between instruments in Exhibits 1 and 2. Pay careful attention to the main strengths and weaknesses of each one. As part of your financial and accounting education, you need to know how to use the terms debit and credit and the way they affect a company or personal balance sheet. So part of the discussion of T-bills deals with debits and credits to train you in the correct use of these terms. The discussion of T-bills then presents calculations for the expected return on investment in U.S. Treasury bills. Make sure you can calculate this return. The section on the capital market provides a description of securities of the U.S. Treasury, government agencies, and corporations competing for funds in the capital market. The module then examines the mortgage market. Understand why other borrowers of long-term funds can outbid the usual mortgage borrowers. Be sure to understand how the housing industry has a cyclical pattern of activity. This understanding will make it clear to you why there is a growing family of specialized institutions in the secondary market for mortgages. Financial institutions, often highly specialized, serve the economy by linking particular classes of suppliers and users of funds. Some, such as banks and savings and loan associations, receive deposits from savers and lend the proceeds to borrowers. Others, such as investment bankers, merely assist corporations and others to raise funds directly when corporations issue securities in the primary capital markets. This module deals largely with depository financial institutions by contrasting the two largest types—banks and savings and loan associations. It offers brief accounts of insurance companies, pension funds, investment companies, and personal trusts. When you finish this module you will be able to do the following: 1. Recognize characteristics of the money market and the dominant role of U.S. Treasury offerings in this market. 2. Calculate the annualized discount yield on Treasury bills as presented in the financial press. 3. Be able to relate the terms to the balance sheet and to show the impact on cash when a company (or person) buys a T-bill. 4. Calculate the return on investment in a T-bill determined by the price you pay for it. 5. Know the characteristics of the capital market. Determine the difference between
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FINA Text BK - MODULE 02 - Mkts Rates + Fisher - MODULE 02...

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