ECN 204 Chapter 8: Chapter 8.docx

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Chapter 8 saving, investment and financial system. Financial system: consists of those institutions in the economy that helps to match one person"s saving and investment. Financial market: are the institutions through which a person who wants to save can directly supply funds to a person who wants to borrow. The data of maturity is the date which the loan will be repaid. The amount that the company borrows from the bondholder is called the principle. Long term bonds are more riskier than short-term bonds because long- term bond holders have to wait for a longer time. Bondholder receive first money first, if the company goes bankrupt. Stock: a claim to partial ownership in a firm. The sale of stock to raise money is called equity finance. The sale of bonds is called deft finance. Bondholders get the money first and then the shareholder(the leftovers) Financial intermediates: are financial institutions though which saver can indirectly provide funds to borrowers.

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