ECON 3660 Study Guide - Final Guide: Asset Allocation, Scotiabank, Investment Company

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Market capitalization- how big a share a company has in the market. Informational role- the role played by financial assets that enables the efficient allocation of capital to real assets by establishing prices that convey information about the value of those assets. Corporate e(cid:454)e(cid:272)uti(cid:448)es hire a (cid:271)oard of dire(cid:272)tors, bod"s o(cid:448)er see (cid:373)a(cid:374)agement of the firm in accordance to shareholders/owners interests. Agency problems- conflict of interest between shareholders and managers, shareholders want strategies to be pursued that will increase the value of stocks, managers want whatever will increase their salary/bonus (personal interest problem) Proxy contest- unhappy shareholders vote to take control of the firm and vote in another board. Households- suppliers of capital as savers, they purchase securities issues by firms that need help raising funds. Firms- demanders of capital, raise capital to pay for investments in real assets, the income generated from the real assets goes back to the investors.

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