Lesson 3 - Lesson3 FinancialIntermediation...

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Lesson 3 Financial Intermediation –  Institutions and Instruments In this lesson we gain an understanding of the role and  the benefits of financial intermediaries. We look at what  kinds there are and what assets they trade  Suggested Reading:  RSU Chapter 3
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Exhibit 1a  Flow of Funds from Lenders to Borrowers Financial Intermediaries Savers- Lenders Borrowers- Spenders Financial Markets
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Exhibit 1b   Flow of Funds from Lenders to Borrowers Financial Intermediaries Surplus Spending Units Deficit Spending Units Financial Markets
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Exhibit 2 Characteristics of Surplus and Deficit Spending Units DSU’s Less numerous Larger Risk takers Longer time horizon SSU’s Numerous Small Risk averse Short time horizon
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 Exhibit 3 Financial Institutions – listed by rank Commercial banks Private non-insured pension funds Mutual funds (stocks and bonds) Life insurance companies State and local government retirement funds
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Lesson 3 - Lesson3 FinancialIntermediation...

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