ECN 204 Lecture Notes - Loanable Funds, Unemployment Benefits, Investment Canada

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Chapter 8 saving, investment, and the financial system. Financial system: the group of institutions in the economy that help to match one person"s saving with another person"s investment. Financial markets: are institutions through which a person who wants to save can directly supply funds to a person who wants to borrow. Bond: a certificate of indebtedness that specifies the obligation of the borrower to the holder of the bond. It identifies the time at which the loan will be repaid (date of maturity), rate of interest that would be paid periodically until the loan matures. Bond"s term: the length of time until the bond matures. Long term bonds usually pay higher interest rate than short term bonds. Credit risk: the probability that the borrower will fail to pay some of the interest or principle; a failure to pay is called a default. Stock: represents ownership in a firm and is therefore a claim to the profits that the firm makes.

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