Chapter 1 Financial Markets and Institutions

Markets in which funds are transferred from people who have an excess of available funds to people who have a shortage.

1) Bond Market2) Stock Market3) Foreign Exchange Market
Bond and Stock Markets, are crucial to promoting greater economic efficiency by channeling funds from people who do not have a productive use for them to those who do.

1) Personal wealth2) the behavior of businesses and consumers
3) cyclical performance of the economy

is a claim on the issuer's future income or assets.

Any financial claim or piece of property that is subject to ownership.

Is a debt security that promises to make payments periodically for a specified period of time.

1)enable corporations and governments to borrow to finance their activities2)where interest rates are determined

Is the cost of borrowing or the price paid for the rental of funds

1)Represents a share of ownership in a corporation. 2)It is a security that is a claim on the earnings and assets of the corporation.3)Issuing stock and selling it to the public is a way for corporations to raise funds to finance their activities.4) Traded in the Stock Market

For funds to be transferred from one country to another, they have to be converted from the currency in the country of origin (dollars) into the currency of the country they are going to (euros).-place where they conversion takes place. -important because it is where the foreign exchange rate is determined.

The price of one country's currency in terms of another's.

The government agency responsible for the conduct of monetary policy -> Federal Reserve System (the Fed)-The most important financial institution in the financial system.

Involves the:1) management of interest rates 2) quantity of money (money supply)

Defined as anything that is generally accepted in payment for goods and services or in the repayment of debt.

Institutions that borrow funds from people who have saved and in turn make loans to others in need of funds.