ECON308 Lecture Notes - Lecture 2: Preferred Stock, Primary Market, Root Mean Square
6 Jan 2018
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Document Summary
Chapter 2: an overview of the financial system: lender/ saver = households, business rms, government, foreigners, borrower/ spenders = business rms, government, households, foreigners. Function of financial markets: direct finance: borrowers (spenders) get funds directly from lenders (savers) (ex: venture capitalists, remittances) Securities are assists for the person who buys them (the saver-lender) and liabilities for the individual who sells/issues them (the spender-borrower: indirect finance: more common than direct nance in countries with developed nancial markets. Borrowers (spenders) get funds from lenders (savers) through nancial intermediaries (ex: banks, investment brokers) Why are nancial markets important: people who save are usually not the people who may have pro table investment opportunities, timing of income streams, improve well-being. Debt and equity markets: bond (debt) pre-arranged (principal and interest) at regular intervals; can buy from treasurydirect. gov. Long term (more than 10 years: equities (stocks) a claim to net income. Net income = income - expenses - taxes.
