Why study financial markets? Flashcards
What is a security?
A security is a claim on the issuer’s future income or assets.
What is a bond?
A bond is a debt security that promises to make payments periodically for a specified period of time.
What are debt markets important to economic activity?
Debt markets also often referred to generically as the bond market, are especially important to economic activity because they enable corporations and governments to borrow in order to finance their activities.
Which market is the interest rate determined in?
The bond market.
What is an interest rate?
An interest rate is the cost of borrowing or the price paid for rental of funds.
How are interest rates important on a personal level?
High rates of interest could deter you from buying a house or a car because the cost of financing it would be high.
Conversely, high interest rates could encourage you to save because you can earn more interest income by putting aside some of your earnings as savings.
How do interest rates have an impact on the overall health of the economy?
Because they affect not only consumer’s willingness to spend or save but also businesses’ investment decisions.
High interest rates, for example, might cause a corporation to postpone building a new plant that would provide more jobs.
Why do economists frequently lump interest rates together and refer to “interest rate”?
Because different interest rates have a tendency to move in unison.
What is a stock?
A stock represents a share of ownership in a corporation.
It is a security that is a claim on the earnings and assets of the corporation.
Why do corporations issue stocks?
Issuing stock and selling it to the public is a way for corporations to raise funds to finance their activities.
What is the most widely followed financial market?
The stock market.
What is the stock market?
The stock market is a market in which claims on the earnings of corporations (shares of stock) are traded.
