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3323ch03 - Chapter 3 Financial Instruments Markets and...

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Chapter 3 Financial Instruments, Markets, and Institutions Federal Reserve affects the supply of money Quantitative 1. Open Market Operations 2. Reserves 3. Discount Rate affects aggregate levels of income, production, employment, price Qualitative 1. Regulation Q 2. Margin Requirements 3. Moral Session 4. Min. Down Pmt. affects ownership mix of money and credit, changes the distribution of spending and income among sectors of economy Options to DSU/SSU - DSU (Borrower)--Three Options: - Reduce Dollar balances - Dissave by selling financial securities they own - Borrowing by issuing new financial securities on themselves - SSU (Saver)--Three Options - Build up their dollar balances - Reduce their debt by buying back securities - Lend by buying securities issued by DSU
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Financial Markets: Allow for the exchange of financial assets such as stocks/bonds. Financial Institutions: Facilitate flow of funds from individuals, corp's, or govt. from surplus spenders to deficits spenders Financial/Real Sector Financial Asset Real Asset Primary Security: IOU flows directly between borrower/lender Secondary Security: Liability of financial institution Securities Traded in Financial market Equity: represents ownership (stock) Debt: represents IOU (bonds) Types of financial markets Broad Classifications: Money Market Lower return More liquid Capital Market Primary Market---- New issues Secondary Market—transfer of ownership provides for primary market:
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3323ch03 - Chapter 3 Financial Instruments Markets and...

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