ECON 3K03 Lecture Notes - Lecture 2: Insider Trading, Financial Institution, Adverse Selection
8 Feb 2015
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Document Summary
The economics of money, banking, and financial markets. Learning objectives: summarize the basic function performed by financial markets, explain why financial markets have several classifications, describe the principal money market and capital market instruments, express why the government regulates financial markets and financial intermediaries. Function of financial markets: channel funds from economic players that have surplus funds to those that have a shortage of funds, direct finance. Borrowers borrow funds directly from lenders in financial markets by selling them securities. Function of financial markets (cont"d: promotes economic efficiency by producing an efficient allocation of capital, directly improves the well-being of consumers by allowing them to time purchases better. Structure of financial markets: debt markets: debt instruments. A contractual agreement by the borrower to pay the holder of the instrument fixed dollar amounts at regular intervals (interest and principal payments) until a specified date (the maturity date: maturity. Intermediate-term (maturity >1 and < 10 years)
