Textbook Notes (363,559)
Canada (158,426)
Finance (37)
MGFB10H3 (19)
Derek Chau (11)
Chapter 1

Chapter 1 Notes

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University of Toronto Scarborough
Derek Chau

Chapter 1 An Introduction to Finance Notes finance the study of how and under what terms savings (money) are allocated between lenders and borrowers finance requires basic understanding of securities and corporate law and institutions that facilitate and monitor exchange of funds 1.1 Real versus Financial Assets Real Assets real assets the tangible things that compose personal and business assets personal assets are the values of houses (residential structures), the land the houses are on, the major appliances in the houses (televisions, washing machines, etc), and cars for businesses, the major assets are office towers, factories, mines, and so on (non-residential structures), the machinery and equipment in those structures, the land they are on, and the stock or inventories of thing waiting to be used or sold Financial Assets financial assets a claim that one individual or institution has on another the basic idea behind the National Balance Sheet Accounts (NBSA) is to collect financial data on the major agents in the financial system and then track the borrowing and lending between these agents Households understanding wealth distributions within a country is a complex issue, however, a good starting point is to consider how borrowing and lending changes throughout the life cycle of individuals as they grow older 1.2 The Financial System Overview basic financial flow is intermediated through the financial system, which comprises (1) financial intermediaries that transform the nature of the securities they issue and invest in, and (2) market intermediaries that simply make the markets work better financial intermediaries entities that invest funds on behalf of others and change the nature of the transactions market intermediaries entities that facilitate the working of markets and help provide direct intermediation but do not change the nature of the transaction; also called brokers Channels of Intermediation the financial system transfers money from those with a surplus (lenders) to those who need it (borrowers) intermediation the transfer of funds from lenders to borrowers there are two ways for individuals to borrow: (1) directly from borrowers; and (2) indirectly from individuals who have first loaned their savings to (deposited into) a financial institution, which in turn lends to the ultimate borrowers there are two basic channels for direct intermediation: 1) the lender provides money directly to the ultimate borrower without a
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