Chapter_02 - Chapter2 FinancialMarkets 121 fromthosewhosupp

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Financial Markets and Institutions § The Capital Allocation Process § Financial Markets § Financial Institutions § Stock Markets and Returns § Stock Market Efficiency Chapter 2 12-1
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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
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How is capital transferred between  savers and borrowers? § Direct transfers § Investment  banking house § Financial  intermediaries 33
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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
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Types of financial markets § Money vs. Capital § Primary vs. Secondary § Spot vs. Futures § Public vs. Private 52-5
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The importance of financial  markets § 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
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