ch04 - CHAPTER4 TheFinancialEnvironment: Financialmarkets

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    4-1 CHAPTER 4 The Financial Environment:  Markets, Institutions, and Interest Rates Financial markets Types of financial institutions Determinants of interest rates Yield curves
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    4-2 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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    4-3 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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    4-4 How is capital transferred between  savers and borrowers? Direct transfers Investment banking  house Financial  intermediaries
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    4-5 Types of financial intermediaries Commercial banks Savings and loan associations Mutual savings banks Credit unions Pension funds Life insurance companies Mutual funds
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    4-6 Physical location stock exchanges  vs. Electronic dealer-based markets Auction market vs.  Dealer market  (Exchanges vs.  OTC) NYSE vs. Nasdaq Differences are  narrowing
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    4-7 The cost of money The price, or cost, of debt capital is the  interest rate. The price, or cost, of equity capital is  the required return.  The required  return investors expect is composed of  compensation in the form of dividends  and capital gains.
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    4-8 What four factors affect the cost  of money? Production  opportunities Time preferences for  consumption Risk Expected inflation
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    4-9 “Nominal” vs. “Real” rates k = represents any nominal rate k* = represents the “real” risk-free rate  of interest.  Like a T-bill rate, if there 
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ch04 - CHAPTER4 TheFinancialEnvironment: Financialmarkets

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