Why study Financial Markets?
1. Financial markets channel funds from savers to investors, there by promoting economic efficiency
2. They affect personal wealth, consumption, and the behavior of business firms
The Bond markets and interest rates
A bond is a debt security that promises to make payments periodically for a specified of time.
An interest rate is cost of borrowing or the price paid for the rental of funds (usually expressed as a
percentage for the rental of $100 per year)
Interest rates have a tendency to more together. This is why we can simplify our economic models by
including only one interest rate.
The stock market
A stock is a security that represents a claim on the assets and the earnings of a corporation.
Issuing stock and selling it to the public is a way for corporations to raise funds to finance
The stock market is an important factor of business investment decisions because the price
of shares affects the amount of funds that can be raised by selling newly issued stock to
finance investment spending.
The foreign exchange market
Funds transferred fr