Fi(cid:374)a(cid:374)(cid:272)ial syste(cid:373): the group of i(cid:374)stitutio(cid:374)s i(cid:374) the e(cid:272)o(cid:374)o(cid:373)y that help to (cid:373)at(cid:272)h o(cid:374)e perso(cid:374)"s savings with another perso(cid:374)"s i(cid:374)vest(cid:373)e(cid:374)t. This chapter examines how the financial system works. Financial institutions can be grouped into two categories: financial markets, financial intermediaries. Financial markets: financial institutions through which savers can directly provide funds to borrowers. Bond: a certificate of indebtedness that specifies the obligation of the borrower to the holder of the bond: debt finance: the sale of a bond to raise money. Characteristics: the (cid:271)o(cid:374)d"s ter(cid:373) the (cid:271)o(cid:374)d"s (cid:272)redit risk. Stock: represents ownership in a firm and is, therefore, a claim to its profits. Equity finance: the sale of a stock to raise money. The prices at which shares trade on stock exchanges are determined by the supply and demand for the stock. Stock index: is an average of a group of stock prices: dow jones industrial average, s&p/tsx composite index.