FINANCIALMKTSCLASS - 1 Financial System Key Points...

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Unformatted text preview: 1 Financial System Key Points Functions of Financial System Financial Institutions, Instruments and Markets Regulation of the Financial 1 System Changes in the Financial System Financial Crises 73 Finsystem how the stk market works both? In the News? 2 Course Issues Clickers/gradebook Three weeks to thanksgiving Grading Investment game 2,3 Advisement Jobs, Careers 3 2 What are the underlying economic functions of the financial system? 4 Sources of Finance Internal retained earnings External Finance External finance premium Bernanke Asymmetric information impacts this Issuing marketable debt and equity securities not the primary way in which businesses finance their operations finance their operations Only large, well-established corporations have easy access to securities markets to finance their activities Indirect finance is many times more important than direct finance Financial intermediaries, particularly banks, are the most important source of external funds used to finance businesses. 5 Why So Many Different Financial Instruments? Different Needs Borrowers and Lenders Liquidity / Term Risk / yield Default and market risk 6 Default and market risk Current and yield to maturity Debt vs equity etc Legal restrictions Information issues Direct versus intermediaries 3 Classifying Securities Debt Corporate, treasuries, agencies, munis (S&Ls), junk bonds, convertible bonds Equity Common and preferred stock Money and Capital Markets Short-term (maturity < 1 year) Money Market 7 Commercial paper, negotiable cds, treasury bills, repurchase agreements, euro dollars, federal funds, bankers acceptances Long-term (maturity > 1 year) Capital Market corporate bonds, treasury notes and bonds, TIPS, municipal (S&L) bonds, mortgages, mortgage backed securities & equity Primary and Secondary Markets Primary - source of funds, underwriting, investment banking Secondary liquidity and pricing for primary market Cash and Derivatives Securities Stock - common and preferred stock Voting, dividends, residual claims...
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This note was uploaded on 02/29/2012 for the course ECONOMICS 220:301 taught by Professor Sheflin during the Fall '09 term at Rutgers.

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FINANCIALMKTSCLASS - 1 Financial System Key Points...

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