June 21 Posted-1

June 21 Posted-1 - • Introduction and Overview •...

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Unformatted text preview: • Introduction and Overview • Functions of Financial Markets: What Do Financial Markets Do, and How Do They Do It? • Issues Arising form Asymmetric Information • Where Do Companies Get Funds? • Financial Intermediation vs. Direct Finance • Primary vs. Secondary Markets • Bank-Centered Systems vs. Market-Centered Systems • Fundamental Concepts of Finance The Supply of Capital Physical Capital = Machines, Factories, Office Bldgs., Infrastructure, etc. The Supply of Capital Physical Capital = Machines, Factories, Office Bldgs., Infrastructure, etc. Working Capital The Supply of Capital Physical + Working Capital The Supply of Capital Financial Capital → Physical + Working Capital The Supply of Capital Savings → Financial Capital → Physical + Working Capital Functions of Financial Markets • Provide ways to transfer economic resources through time, across borders and among industries. Functions of Financial Markets • Provide ways to transfer economic resources through time, across borders and among industries. • Provide essential information to facilitate and coordinate decentralized decision-making Functions of Financial Markets • Provide ways to transfer economic resources through time, across borders and among industries. • Provide essential information to facilitate and coordinate decentralized decision-making • Provide ways to manage risk Functions of Financial Markets • Provide ways to transfer economic resources through time, across borders and among industries. • Provide essential information to facilitate and coordinate decentralized decision-making • Provide ways to manage risk • Provide a means to clear and settle payments to facilitate trade Functions of Financial Markets • Provide ways to transfer economic resources through time, across borders and among industries. • Provide essential information to facilitate and coordinate decentralized decision-making • Provide ways to manage risk • Provide a means to clear and settle payments to facilitate trade • Provide a means for pooling of resources and subdividing ownership shares Functions of Financial Markets • Provide ways to transfer economic resources through time, across borders and among industries. • Provide essential information to facilitate and coordinate decentralized decision-making • Provide ways to manage risk • Provide a means to clear and settle payments to facilitate trade • Provide a means for pooling of resources and subdividing ownership shares • Provide ways to deal with problems arising from asymmetric information Problems Arising from Asymmetric Information Problems Arising from Asymmetric Information • Adverse selection Problems Arising from Asymmetric Information • Adverse selection • Occurs prior to a market transaction Problems Arising from Asymmetric Information • Adverse selection • Occurs prior to a market transaction • Moral hazard Problems Arising from Asymmetric Information • Adverse selection • Occurs prior to a market transaction • Moral hazard • Occurs after a market transaction Problems Arising from Asymmetric...
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This note was uploaded on 10/21/2010 for the course ECON 1530 taught by Professor Ohly during the Spring '10 term at Dartmouth.

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June 21 Posted-1 - • Introduction and Overview •...

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