ECON 1000 Lecture 8: chapter 8
24 Mar 2017
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Chapter 8: savings, investment and the financial sector. Financial system matches one person"s savings with another"s investment. The relationship between macro variables and financial system. Can group financial institutions into financial markets and financial intermediaries. Bond = certificate of indebtedness, specific obligations of borrower to holder. 1) term = length of time until bond matures. 2) credit risk = probability borrower will fail to pay some interest or principle. Example: govt pays 5% and dave dodgy motors has 10% probability of default. Canada = 2. 38%, bc = 3. 37%, suncor = 4. 42% Firm very profitable: shareholders enjoy benefits, bondholders just get interest stated. Once issued, shares are traded on stock exchange. Stock index measures overall level of stock prices. Institutions via which lenders can provide funds to borrowers. Smaller firms typically unable to issue stocks or bonds - take out loans. Use these to make loans to those borrowing.
