Economics A100 Lecture Notes - Lecture 19: Mutual Fund, Credit Risk, High-Yield Debt
28 Dec 2020
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The financial system consists of institutions that help match one person"s saving with another person"s investment. On the broadest level, it moves the economy"s scarce resources from savers to borrowers. 2 categories: financial markets and financial intermediaries. Institutions through which a person who wants to save can directly supply funds to a person who wants to borrow the holder of the bond (an iou) keep in mind the date of maturity and interest rate. Bond= certificate of indebtedness that specifies obligations of the borrower to. 3 characteristics of a bond: term, credit risk, and tax treatment. Tax treatment= the way the tax laws treat the interest earned on the bond. Interest on most bonds is taxable income. Municipal bonds issued by state and local governments are not required to pay federal income tax; but usually pay lower interest rates. Stock represents ownership in a company and is a claim on the profits that the.
