COMMERCE 4FI3 Chapter Notes - Chapter 1: Disintermediation, Swaption, Program Trading
10 Oct 2017
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Firms need to raise funds for operations so use financial markets to sell pieces of paper that have claim on firm"s real assets. These firms and individuals classify themselves as lenders or borrowers. Financial markets: transfer excess funds from those who have to those who seek. *width of bid/ask spread implies degree of liquidity, size of bid/ask implies depth of market. Financial markets divided into type of products traded (equity, bond, commodity, derivatives, etc. ) Short-term debt in canada classified issue maturing in 3 years or less while 1 year or less in us. Borrowing and lending: transfer of funds from one agent to another. Price determination: setting prices for new issues and existing securities. Information aggregation and coordination: price fluctuation is based on collective interpretation of information about asset"s values. Risk sharing: transfer of risk to those that undertake investments. Liquidity: allows for easier exchange or sale of assets.
