ECON-3076EL Lecture Notes - Lecture 1: Maturity Transformation, Market Failure, Used Cars
28 Feb 2017
School
Department
Course
Professor
Document Summary
Chapters 1 and 2: an overview of the financial system. Financial system = financial + financial markets institutions. It allocates s to i = financial intermediation. People can hold assets with the risk, return. Prices of bonds, interest rates and of stocks. Financial crisis: disruption in the flow of s to i (2008) Financial intermediation occurs through: direct contracting" in financial markets, indirectly through financial institutions: why financial institutions exist at all, financial markets. Direct finance: firms (deficit units) issue financial securities directly to lenders (surplus units) in financial markets in exchange for funds. Securities (bonds and stocks) are binding legal contracts that specify the rights and obligations of both contracting parties. Financial markets: classification: debt and equity markets (by contract type, primary and secondary markets (new or old issue, money and capital markets (by maturity, exchanges and otc markets (by market structure) When you buy bonds, you are lending funds to a company (or government)
