Chapter01 - Chapter 1 Overview The Financial System...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter – 1 Overview The Financial System Provides for efficient flow funds from saving to investment by bringing savers and borrowers together via financial markets and financial institutions Three participants in the economy 1. Households 2. Business Firms
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
These participants can be 1. Surplus Spending Unit (SSU) more income than spending for the period, resulting in savings called: saver, lender, purchaser of financial assets, buyer of securities 1. Deficit Spending Unit (DSU) spending exceeds income for the period called: borrower, seller of securities 1. Balanced Budget Unit Spending = Income How do DSU and SSU get together?
Background image of page 2
Direct Financing SSU DSU A L A L - Money + Money + IOU from DSU + IOU from DSU
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Creation Of A Financial Asset For every financial asset, there is a corresponding financial liability. Loans outstanding match borrower’s liabilities. Under direct financing, borrowers and lenders must find each other; match amount, maturity, risk, liquidity. DSU’s – fund desired projects immediately. SSU’s – earn timely returns on saving.
Background image of page 4
1. Brokers Buy or sell at best possible price for their clients 1. Dealers “Make a market” by carrying inventories of securities => “Bid-Ask” 1. Investment Bankers “Underwrite” new issues of securities
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 17

Chapter01 - Chapter 1 Overview The Financial System...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online