Chapter 13

Question 1

2 most important financial institutions

Answer 1

1. Financial markets
2. Financial intermediaries

Question 2

Bond market

Answer 2

financial institutions which savers can provide funds to borrowers

Question 3

Stock market

Answer 3

a claim to partial ownership in a firm

Question 4

components of a bond

Answer 4

contains
- principal (amount)
-date of maturity (time of repayment)
-rate of interest (borrower will pay until loan matures)

Question 5

debt finance

Answer 5

the sale of bonds to raise money

Question 6

tax treatment

Answer 6

way the tax laws treat the interest earned on the bond

Question 7

equity finance

Answer 7

sale of stocks to raise money

Question 8

stock index

Answer 8

and average of a group of stock prices
- Dow Jones Industrial Average
-S&P 500

Question 9

2 most important financial intermediaries

Answer 9

1. banks
2. mutual funds

Question 9

private saving

Answer 9

income remaining after households pay their taxes and pay for consumption

Question 10

Loanable funds market

Answer 10

a supply and demand model of the financial system

Question 11

saving

Answer 11

the source of supply of loanable funds

Question 12

investment

Answer 12

the source of demand for loanable funds