Chapter_02 - Financial Markets and Institutions The Capital...

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Unformatted text preview: Financial Markets and Institutions The Capital Allocation Process Financial Markets Financial Institutions Stock Markets and Returns Chapter 2 12-1 The Capital Allocation Process In a well-functioning economy capital flows efficiently from those who supply capital to those who demand it. Suppliers of capital Individuals and institutions with excess funds. Saving money and looking for a rate of return on their investment. Demanders or users of capital Individuals and institutions who need to raise funds to finance their investment opportunities. Willing to pay a rate of return on the capital they borrow. 22-2 How is capital transferred between savers and borrowers? Direct transfers Investment banking house Financial intermediaries 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. 42-4 Types of financial markets Money vs. Capital Primary vs. Secondary Spot vs. Futures Public vs. Private 52-5 The importance of financial Well-functioning financial markets facilitate flow of capital investors to the users of capital Savers receive returns on their money saved/invested Users receive necessary funds to finance investment Promote economic growth Perform better than economies with poorly- 62-6 Derivatives...
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Chapter_02 - Financial Markets and Institutions The Capital...

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