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    Finance Ch1 Notes

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    DianaIgnatova
    This document discusses the role of financial markets and institutions in allocating capital in society. It notes that proper capital allocation leads to growth in wealth, income, and economic opportunity. It defines primary and secondary financial markets as the channels through which funds flow from those who raise funds through financial instruments to those who use the funds. It also describes different types of financial markets like money markets and capital markets, as well as derivative financial instruments and the various financial institutions that channel funds from suppliers to users. Finally, it notes that financial institutions are heavily regulated to protect society from market failures.

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    Finance Ch1 Notes

    Uploaded by

    DianaIgnatova
    8 views2 pages
    This document discusses the role of financial markets and institutions in allocating capital in society. It notes that proper capital allocation leads to growth in wealth, income, and economic opportunity. It defines primary and secondary financial markets as the channels through which funds flow from those who raise funds through financial instruments to those who use the funds. It also describes different types of financial markets like money markets and capital markets, as well as derivative financial instruments and the various financial institutions that channel funds from suppliers to users. Finally, it notes that financial institutions are heavily regulated to protect society from market failures.

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    This document discusses the role of financial markets and institutions in allocating capital in society. It notes that proper capital allocation leads to growth in wealth, income, and economic opportunity. It defines primary and secondary financial markets as the channels through which funds flow from those who raise funds through financial instruments to those who use the funds. It also describes different types of financial markets like money markets and capital markets, as well as derivative financial instruments and the various financial institutions that channel funds from suppliers to users. Finally, it notes that financial institutions are heavily regulated to protect society from market failures.

    Copyright:

    © All Rights Reserved
    Download as ODT, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as odt, pdf, or txt
    8 views2 pages

    Finance Ch1 Notes

    Uploaded by

    DianaIgnatova
    This document discusses the role of financial markets and institutions in allocating capital in society. It notes that proper capital allocation leads to growth in wealth, income, and economic opportunity. It defines primary and secondary financial markets as the channels through which funds flow from those who raise funds through financial instruments to those who use the funds. It also describes different types of financial markets like money markets and capital markets, as well as derivative financial instruments and the various financial institutions that channel funds from suppliers to users. Finally, it notes that financial institutions are heavily regulated to protect society from market failures.

    Copyright:

    © All Rights Reserved
    Download as ODT, PDF, TXT or read online from Scribd
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    Download as odt, pdf, or txt
    of 2

    Chapter 1

    Marketsandinstitutionsareprimarychannelstoallocatecapitalinoursociety
    Propercapitalallocationleadstogrowthin:
    SocietalWealth
    Income
    Economicopportunity

    Financial markets are one type of structure through which funds flow
    FM :
    1) Primary where users raise funds by issuing financial instruments (stocks,bonds)
    Investor Banks
    Corporations that issue stocks and bonds(instruments)
    2 )Secondary mkts where financial instruments are traded among investors (NYSE, NASDAq)
    Financial Markets
    Securities Brokers
    Investors
    FM:
    1)MoneyMKTStradedebtsecuritieswithmaturitiesof1yearorless
    UStreasurybills
    CDS
    littleornorisk=lowreturn
    2)CapitalMKTstradedebt(bonds)andequity(stocks)instrumentswithmaturitiesofmorethan1
    year
    highriskofcapitalloss=higherreturn
    DerivativeAsecuritywhosepriceisdependentuponorderivedfromoneormoreunderlyingassets.
    Thederivativeitselfismerelyacontractbetweentwoormoreparties.Itsvalueisdeterminedby
    fluctuationsintheunderlyingasset.Themostcommonunderlyingassetsincludestocks,bonds,
    commodities,currencies,interestratesandmarketindexes.

    options
    futures
    contractsandswaps
    securitizedloans

    FinancialInstitutionsinstitutionsthroughwhichsupplierschannelmoneytousersoffunds
    FinancialInstitutionsaredistinguishedby:
    1)whethertheyacceptinsureddeposits,
    depositorycommercialbanks,savingsassociations,savingsbanks,creditunions
    nondepositoryfinancialinstitutions
    Contractualinsurancecompanies,pensionfunds
    NonContractualinvestmentbanks,securitiesfirms,mutualfunds

    FIs are heavily regulated to protect society at large from market failures
    SubprimemortgageAtypeofmortgagethatisnormallymadeouttoborrowerswithlowercredit
    ratings.Asaresultoftheborrower'sloweredcreditrating,aconventionalmortgageisnotoffered
    becausethelenderviewstheborrowerashavingalargerthanaverageriskofdefaultingontheloan

    mortgage-backed security - a security created when a group of mortgages are gathered together and
    bonds are sold to other institutions or the public

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