E305 Chapter 1

E305 Chapter 1 - E305 Chapter 1 WHY STUDY FINANCIAL...

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E305 Chapter 1 WHY STUDY FINANCIAL MARKETS? The Bond Market and Interest Rates Security (financial instrument) – claim on issuer’s future income/assets Bond (debt security) – promises to make payment periodically for a specific period of time Bond market enable corporations to borrow to finance their activities (where interest rates are determined) Interest rate – cost of borrowing Interest rate on T-bills, fluctuates more than other interest rate, lower on average Interest rate on Baa corporation bond is higher on average The Stock Market Common stock – represent a share of ownership (security) Stock prices are extremely volatile WHY STUDY FINANCIAL INSTITUTIONS AND BANKING? Financial Crises Financial crises – major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms Banks and Other Financial Institutions Banks – financial institutions that accept deposits and make loans. WHY STUDY MONEY AND MONETARY POLICY?
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E305 Chapter 1 - E305 Chapter 1 WHY STUDY FINANCIAL...

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