EC223 Final: Final Review EC223.docx

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17 Mar 2013
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Financial markets market in which funds are transferred from people who have an excess of available funds to people who have a shortage. The bond market is where interest rates are determined. The bond market also enables corporations and governments to borrow to finance their activities. A security is a claim on the issuer"s future income or assets. A bond is a piece of paper certifying that someone who has borrowed money, promises to pay it back at some future date it is nothing more than an iou. An interest rate is the cost of borrowing or the price paid for the rental of funds. Because changes in interest rates have important effects on individuals, financial institutions, businesses, and the overall economy, it is important to explain fluctuations in interest rates that have been substantial over the past twenty years. A common stock represents a share of ownership in a corporation.

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