ECO 304L Study Guide - Quiz Guide: Loanable Funds, Autarky, Retained Earnings
14 Aug 2016
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Topic 6: financial system, savings identities, market for loanable funds in a closed and. Borrowers and savers interact in the financial system through two types of institutions. Financial markets vs. financial intermediaries: financial markets are institutions through which borrowers and lenders come together directly. Bond market (bond is a certificate of indebtedness) stock market (a claim to partial ownership of a firm and a share of profits) Financial intermediaries are organizations that interact with borrowers and lenders separately and bring them together indirectly. Mutual funds (institutions that sell shares to the public and use the proceeds. Oftentimes, firms don"t have enough in retained earnings to pay for a new project. In order to pay for (finance) a capital investment, they have two options to buy portfolios of stocks and bond) Take out a loan or issue a bond = debt finance. Creditors can include workers, suppliers of materials, and pension obligations, as well as bondholders and lenders.
