ECN 204 Chapter 8: Chapter 8
6 Feb 2012
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Document Summary
Ecn 204: chapter 8 -- saving, investment, and the financial system. Financial system: the group of institutions in the economy that help to match on e person"s saving with another person"s investment. The financial system moves the economy"s scarce resources from savers to borrow ers. Financial institutions through which savers can directly provide funds to borro wers. Bonds: a certificate of indebtness that specifies the obligations of the borrowe r to the holder of the bond. Long-term bonds are riskier than short term; longer time until principa l is paid. Credit risk: the probability that the borrerwer will fail to pay some or all of the interest or principal. Provincial gov"t is considered a higher risk than federal because they don"t have as diversified economy as national. Corporate bonds pay higher rates because of volatile nature of revenues. Junk bonds: paid by shaky companies at a high rate.
