ch13_1 - SAVING,INVESTMENTAND SAVING,INVESTMENTAND...

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SAVING, INVESTMENT AND  SAVING, INVESTMENT AND  THE FINANCIAL SYSTEM THE FINANCIAL SYSTEM SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 1
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In this chapter,  In this chapter,  look for the answers to these questions: look for the answers to these questions: What are the main types of financial institutions in the U.S. economy, and what is their function? What are the three kinds of saving? What’s the difference between saving and investment? How does the financial system coordinate saving and investment? How do govt policies affect saving, investment, and the interest rate? 2
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SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 3 Financial Institutions The financial system : the group of institutions that helps match the saving of one person with the investment of another. Financial markets : institutions through which savers can directly provide funds to borrowers. Examples: The Bond Market. A bond is a certificate of indebtedness. The Stock Market. A stock is a claim to partial ownership in a firm.
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Financial Markets The Bond Market A bond is a certificate of indebtedness that specifies obligations of the borrower to the holder of the bond. Characteristics of a Bond Term : The length of time until the bond matures. Credit Risk : The probability that the borrower will fail to pay some of the interest or principal. Tax Treatment : The way in which the tax laws treat the interest on the bond. IOU
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Financial Markets  The Stock Market Stock represents a claim to partial ownership in a firm and is therefore, a claim to the profits that the firm makes. The sale of stock to raise money is called equity financing. Compared to bonds, stocks offer both higher risk and potentially higher returns. The most important stock exchanges in the United States are the New York Stock Exchange, the American Stock Exchange, and NASDAQ.
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SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 6 Financial Institutions Financial intermediaries : institutions through which savers can indirectly provide funds to borrowers. Examples:
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ch13_1 - SAVING,INVESTMENTAND SAVING,INVESTMENTAND...

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