台中央大学货币银行学MB.Chapter 2.ppt

Chapter 2? An Overview of the Financial System This chapter presents the major financial intermediaries and the instruments that are traded in financial markets as well as how these markets are regulated Function of Financial Markets 1. Financial markets perform the essential economic function of channeling funds between lenders and borrowers. 2. The principal lender-savers are households, but businesses and the government as well as foreigners are also lenders. 3. The principal borrowers-spenders are businesses and the government, but households and foreigners also borrow to finance their spending. 4.?Direct finance: borrowers borrow funds directly from lenders in financial markets by selling them securities (financial instruments). 5.?Securities are assets for the persons who buys them but liabilities for the individual or firm that sells them. Structure of Financial Markets 1. Debts and Equity Markets (1) A firm can obtain funds in a financial market in two ways. One is to issue a debt instrument, such as a bond or a mortgage. This contractual agreement promises to pay the holder of the instrument fixed dollar amounts at regular intervals until a specified date. (2) The maturity of a debt instrument is the time to that instrument’s expiration date. A debt instrument is short term if its maturity is less than a year and long term if its maturity is ten years or longer. The debt instrument with a maturity between one and ten years are intermediate term. (3) The second method of raising funds is by issuing equities, such as common stocks, which are claims to share in the net income and the assets of a business. Equities usually make periodic payments (dividends) to their holders and are considered long term securities. (4)The main disadvantage of owning a corporation’s equities is that the holder is a residual claimant; that is, the corporation must pay all its debt holders before it pays its equity holders. (5) The advantage of holding equities is th