23115 Lecture Notes - Lecture 8: Unemployment Benefits, Stock Market, Financial System
Document Summary
Financial system: group of institutions in the economy that help to match. Financial markets: savers can directly provide funds to borrowers. Bond market: term = length of time until maturity one person"s saving with another person"s investment. Debt finance sale of bonds to raise money. Equity finance sale of shares to raise money. Bond holders = safer, get paid first if company defaults. High credit risk = higher interest rate (e. g. junk bonds) Stock market: claim to partial ownership in a firm. Get paid after bond holders (therefore relatively riskier) Financial intermediaries: savers indirectly provide funds to borrowers. Banks: use deposits to make loans for people who want to borrow. Interest rate paid to depositors, charged to borrowers. Managed funds: allow investors to own a portfolio of shares/bonds: relationship between the financial system and some key macroeconomic variables. *s - national saving = investment (total income after paying for c & g)
