ch2 - 5-1Chapter 2Financial System5-2Financial Markets and...

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Unformatted text preview: 5-1Chapter 2Financial System5-2Financial Markets and InstitutionsThe Capital Allocation ProcessDirect FinanceIndirect FinanceFinancial marketsFunctionsStructureFinancial institutionsFunctionStructureRegulations on the Financial System5-3The Capital Allocation ProcessIn a well-functioning economy, capital flows efficiently from those who supply capital to those who demand it.Suppliers of capital individuals and institutions with excess funds. These groups are saving money and looking for a rate of return on their investment.Demanders or users of capital individuals and institutions who need to raise funds to finance their investment opportunities. These groups are willing to pay a rate of return on the capital they borrow.5-4How is capital transferred between savers and borrowers?1.Direct FinanceBorrowers borrow directly from lenders in financial markets by selling financial instruments which are claims on the borrowers...
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ch2 - 5-1Chapter 2Financial System5-2Financial Markets and...

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