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Test 1 Chapter Concepts

Test 1 Chapter Concepts - Chapter 1 Financial Market Bond...

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Chapter 1 Financial Market : Bond Markets: where interest rates are determined A debt security which makes payments periodically for a specific period of time Interest rates move together Short-term bonds have more fluctuations Long-term bonds are riskier and have higher interest rates Stock Market: a share of ownership of a corporation Foreign Exchange Market: currencies of a country is exchanged for currencies of another Foreign exchange rate Financial Institutions : Necessary for financial markets to function efficiently Financial Intermediaries : Helps get funds from savors to investors Other institutions: (insurance companies, mutual funds, finance companies, investment banks) Banks (commercial banks, credit unions, savings and loan associations, mutual savings banks) Money and Monetary Policy: Defined as anything generally accepted in payment for good or services or the repayment of debt Affects business cycle, inflation, and interest rates Money Supply: effect on inflation rate and price level Positive relationship of inflation and growth rate of money supply Monetary Policy: management of money and interest rates Conducted by country’s central bank, (the Fed) High money growth = high inflation = high interest rates
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Chapter 2 Functions of Financial Markets: Direct finance: where borrowers borrow directly from lenders by selling lenders securities (financial instruments) Structure of Financial Markets: Debt Market : short-term, intermediate-term, long-term Equity Market : common stocks Primary Markets : new securities bought and sold to initial buyers Secondary Markets : securities previously owned are bought and sold (NASDAQ, DOW Jones) Exchanges : trades conducted in central locations (NYSE) Over-the-Counter : dealers at different locations buy and sell (Bond markets, foreign exchange) Money Market : short-term securities are sold Capital Market : longer-term debts and equity instruments are traded Internationalization of Financial Markets: Foreign bonds : sold in a foreign country and are denominated in a currency of the country in which the bonds are sold Eurobonds
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