FIN 4113 Lecture Notes - Lecture 2: Mutual Fund, Market Liquidity
Document Summary
Financial markets: market in which funds are transferred from people with excess funds to people who have a shortage of funds in return for financial claims, fc. Fc claim against future income/ assets of issuer. Direct finance process: (primary market): new financial claims sold directly to fund suppliers. Size of ta and tl of fu increases as a result of direct finance transaction; more cash and more claims against. Composition of ta of fs altered, less cash more securities. Fund supplier purchases financial claim against future income/assets of fund user. Size of total assets of the fund supplier are unaffected by the purchase of financial claims. The balance sheet of the fund user expands by the dollar size of the transaction. Financial claims they purchase and the fi claims against themselves that they issue to raise funding. Indirect finance process: differs from direct finance due to the insertion of a financial intermediary between the fs and fu.
