1-30 - 1-30 Financial Markets Financial Markets the major...

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1-30 Financial Markets Financial Markets- the major function is to channel funds from person or business w/o investment ops (lenders/savers) to one who has them (borrowers/spenders). (gov’t, big business, households some of biggest borrowers, households, businesses, foreign investors some of biggest lenders) This improves economic efficiency Segments Direct Finance- borrowers borrow directly from lenders by selling financial instruments which are claims on the borrower’s future income or assets. An unusual example is IPO’s which are initially direct, however once the securities are traded it is indirect Indirect Finance-Borrowers borrow indirectly from lenders via financial intermediaries (established to source both loanable funds and loan opportunities) by issuing financial instruments which are claims on the borrower’s future income or assets Financial markets produce an efficiently allocation of capital, allowing funds to move. They also improve the well-being of consumers. 1. Debt Markets ─ Short-Term (maturity < 1 year) ─ Long-Term (maturity > 10 year) ─ Intermediate term (maturity in-between) ─ Represented $52.4 trillion at the end of 2009. 2. Equity Markets- Stocks are considered long-term investments ─ Pay dividends, in theory forever ─ Represents an ownership claim in the firm ─ Total value of all U.S. equity was $20.5 trillion at the end of 2009.
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