ECO349H5 Chapter Notes - Chapter 3: Foreign Exchange Market, Repurchase Agreement, Money Market
Document Summary
They provide an essential economic function of channelling funds from households, firms, and governments that have a surplus to those that have a shortage. Direct finance - borrowers borrow funds directly from lenders in the financial market by selling lenders securities (financial instruments) which are claims on the borrowers future income or asset. Without financial markets a borrower and lender may never meet up. Financial markets are critical for producing an efficient allocation of capital. Debt and equity markets - a firm or individual can obtain funds through issuance of a debt instrument such as bond or mortgage or through issuing equities. Short term debt - less than a year. Long term debt - more than a year. Maturity - point at which the instrument expires. Equity - common stock which is a claim on the net income. Dividends - periodic payments on an equity.
