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Unformatted text preview: Money and Banking Ch.2 Financial systems Lenders: 1) households 2) business firms 3) government 4) foreigners Borrowers: 1) Business firms 2) Government 3) Households 4) Foreigners 2 ways of transfer:- direct finance o buying stocks/bonds o financial markets- indirect finance o intermediary institutions (banks/credit unions) Debt market (bond mkt)- short term instrument- less than 1 year to maturity, ex: US treasury bill, commercial papers, federal funds- long term instrument- 10 years and more- instrument term- 1-10 years Equity market (stock market) Primary and secondary markets: Primary mkt: investment banks-underwrite and guarantee a certain price for newly issued stock (IPOs – initially public offers)- corporations must go through these primary markets to sell stocks Secondary Markets: -makes stock market more liquid- determines the true value of the financial assets- classified into exchanges and over-the-counter markets- exchanges mkt: have only one location (such as new york...
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- Spring '08
- Debt, Stock exchange, business firms, secondary markets