BU283 Flashcards
What is a financial system
it is used to transfer money between suppliers and users.
Comprises of financial intermediaries, financial markets, and financial instruments (securities)
What is a financial market
Places where suppliers and users transact and they do it through financial intermediaries.
Money markets vs. Capital markets
What are financial intermediaries
banks, investment banks, pensions, insurance companies
Who are the suppliers
Individuals and businesses
Who are the users
Individuals, businesses, governments
Largest user of capital in the bond market?
Government
What is a bond market?
market for coupon and zero-coupon bonds, issued by governments and corporations.
maturities range from 1 to 30 years
Largest supplier of capital on the bond market?
Domestic households
Largest issuer in the equity market?
publically traded companies
Largest supplier in the equity market?
Households; indirectly through retirement accounts and funds
What are the two types of financial markets? What are their differences?
Money market - securities mature in less than (or equal to) 1 year
Capital market - securities that mature in more than 1 year
What is traded in a money market
Not money
securities that are fixed income securities (bonds), short term, highly liquid, mature less than 1 year
Why would investors use the money market
It is usually corporations, insurance companies, or banks that hold money market securities, provides a safer and quicky way of converting assets into cash.
How do individuals participate in the money market
Money market mutual fund (MMMFs)
Why do sellers participate in the money market?
it is a low cost source of temporary funds. Banks borrow in money market to meet short term reserve requirement shortages.
