CHAPTER 25SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM555FINANCIAL MARKETSFinancial marketsare the institutions through which a person who wants to savecan directly supply funds to a person who wants to borrow. The two most impor-tant financial markets in our economy are the bond market and the stock market.The Bond MarketWhen Intel, the giant maker of computer chips, wants toborrow to finance construction of a new factory, it can borrow directly from thepublic. It does this by selling bonds. Abondis a certificate of indebtedness thatspecifies the obligations of the borrower to the holder of the bond. Put simply, abond is an IOU. It identifies the time at which the loan will be repaid, called thedate of maturity,and the rate of interest that will be paid periodically until the loanmatures. The buyer of a bond gives his or her money to Intel in exchange for thispromise of interest and eventual repayment of the amount borrowed (called theprincipal). The buyer can hold the bond until maturity or can sell the bond at an
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