Chapter 7 Notes - Financial Markets & Institutions

Chapter 7 Notes - Financial Markets & Institutions...

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Financial Management – Chapter 7 Functions of Financial Markets and Institutions Payments mechanism Savings vehicle Credit supplier Wealth storehouse Liquidity source Risk reducer Policy vehicle Imbalances in Income and Expenses Deficit-budget unit revenues < expenditures Balanced-budget unit revenues = expenditures Surplus-budget unit revenues > expenditures Moving Funds from Surplus Units to Deficit Units Direct transfer Semi-direct transfer Broker Indirect transfer Financial intermediary Money vs. Capital Markets Money markets – markets for debt securities of one-year maturity or less Used for liquidity management Capital markets – markets for debt and equity securities with maturity greater than one year Used for intermediate and long-term financing The Investment Banker Provides analysis and advice when issuing new securities Offers “underwriting” which guarantees the proceeds of the sale Puts together the selling group of securities dealers
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