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22 Cards in this Set
- Front
- Back
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Def. of Financial System
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the group of institutions
in the economy that help to match one per- son's saving with another person's investment |
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2 categories of Financial institutions
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1. financial markets
2. financial intermediaries |
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Def. of financial markets
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financial institutions
through which savers can directly provide funds to borrowers |
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2 types of financial markets
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1. stock market
2. bond market |
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Def. of stock
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a claim to partial ownership in a firm
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Def. of bond
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certificate of indebtedness (loan)
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4 features of bonds
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1. principle
2. date of maturity 3. interest payments 4. interest rate |
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3 characteristics of bonds
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1. term
2. tax treatment 3. credit risk |
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How the 3 characteristics of bonds affects interest rate
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Term = high interest rate on long-term loans b/c people could sell them
Tax treatment = depends on who you get your loan from. If it is from a company or fed. gov. then you will have to pay income tax (higher IR) Credit risk = a high interest rate would be for someone that is likely to go bankrupt |
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Equity financing and debt financing
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the sale of STOCK to raise money
the sale of BONDS to raise money |
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Def. of financial intermediaries
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financial institutions
through which savers can indirectly provide funds to borrowers |
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2 types of financial intermediaries
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1. banks
2. mutual funds |
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Def. of mutual fund
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an institution that sells
shares to the public and uses the proceeds to buy a portfolio of stocks and bonds |
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Where are 3 places savers can put their funds?
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1. bonds or stocks (by purchase)
2. interest-bearing accounts (in banks) 3. shares in mutual funds (by purchase) |
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Where are 3 places borrowers can obtain funds?
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1. selling bonds or stocks
2. banks (loan) 3. selling stocks or bonds to mutual funds |
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2 forms of equations for National saving
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S = Y-C-G
S = private saving + public saving |
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What is private and public saving?
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Private = income that households have after paying taxes and their consumptions
Public = amt of tax revenue the gov has left after paying for its spending |
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Budget surplus and Budget deficit
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Surplus = T-G > 0 T>G
Deficit = G-T > 0 G>T |
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What do economists mean by "saving"
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If a person does this with their money....
1. deposits in a bank 2. buys a bond 3. buys stock 4. buys shares in mutual fund |
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What do economists mean by "investment"
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purchase of new capital
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Who supplies funds for SUPPLY of loanable funds market
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individuals (private) and government (public)
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Who borrows the funds for DEMAND of loanable funds market
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Households and businesses
Whoever wants to borrow |
