MGEC71H3 Chapter Notes - Chapter 2: Financial Institution, Commercial Paper, Barometer
5 Dec 2012
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Lender-savers: those who have saved and are lending funds. Borrower-spenders: those who must borrow funds to finance their spending. The most important borrower-spenders are business and the government (federal) In direct finance: borrowers borrow funds directly from lenders in financial markets by selling them securities(financial instrument) which are claim on the borrower"s future income/assets, securities = assets for the person who buys them. = liabilities/ious/debts for the individual or firm that sells/issues them. People who save are frequently not the same people who have profitable investment opportunities available to them, the entrepreneurs. Without financial markets, it is hard to transfer funds from a person who has no investment opportunities to one who has them financial markets=essential to promoting economic efficiency. Financial markets are critical for producing an efficient allocation of capital, which contributes to higher production and efficiency for the overall economy. Well-functioning financial markets also directly improve the well-being of consumers by allowing them to time their purchases better.
