米十金英文版货币银行学Chapter 2 An Overview of Financial Sys.docxVIP

Chapter 2 An Overview of Financial SystemFunction of Financial Markets: Channeling funds, economic efficiency, time purchases. Structure of Financial Markets Categorizations based on the way to obtain funds Debt Markets Equity Markets By issuing a debt instrument, such as a bond or a mortgage Reduce default risk By issuing equities, such as common stock Claims to share in the net income after expenses and taxes and the assets of a business. The borrower should pay the holder of the instrument fixed dollar amounts (before taxes) at regular intervals (interest and principal payments) until a specified date. Equities make periodic payments (dividends) to holders. Benefit from any increases in the corporations profitability or asset value. Maturity: short-term, intermediate-term, long term No maturity date. Residual claimant: all debt holders must be paid first Equity holders get paid after debt holders No ownership rights; often being accompanied by redemption provisions or convertibility Equities confer ownership rights on equity holders. Categorizations based on issues and liquidity of securities Primary Markets Secondary markets New issues of a security are sold by corporation or government agency borrowing funds to initial buyers Previously issued securities can be resold. NASDAQ Investment banks underwrite securities. A corporation acquires new fund only when its securities are first sold in primary markets. Securities brokers - agents of investors who match buyers with sellers of securities; Securities dealers - link sellers by buying and selling securities at stated prices. Two important functions: LTo make the financial instruments more liquid, then make them more desirable and thus easier for the issuing firm to sell in the primary market;  2. To determine the price of the security that the issuing firm sells in primary markets. Categorizations based on organization modes in secondary markets Exchanges Over-the Counter Markets Meet in one central location to