MGEC71H3 Chapter Notes - Chapter 1: The Foreign Exchange, Aggregate Supply, Fiscal Policy
24 Feb 2018
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Aftermath of financial crisis demonstrated the importance of financial system regarding economic well-being. Security (aka financial instrument): a (cid:272)lai(cid:373) o(cid:374) the issuer"s future i(cid:374)(cid:272)o(cid:373)e or assets. Bond: a debt security promises to make payments for a specific period of time. Important to econ. activity because it enables corporations and gov. to borrow and determine interest rates. Also affect business investment decisions etc: different interest rate tends to move in unison, thus lump-i(cid:374)terest rates o(cid:272)(cid:272)ur aka (cid:862)the(cid:863) i(cid:374)terest rate. Short-term interest rates tend to fluctuate more and are lower on average than others. Common stock (aka stock): represents a share of ownership in a corporation: claim on the earnings/assets of the corporation. Important factor in business decisions due to the prices of shares affect the amount of funds raiseable for financial spending. Financial market channel and circulate funds thereby promoting economic activity. Individuals: go through financial intermediaries institutions that borrow and loan funds (indirect finance)
