RSM230H1 Chapter Notes - Chapter 2: Capital Market, Investment Banking, Adverse Selection
31 Dec 2017
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Document Summary
Lender-savers who have save and are lending funds. Borrower-spenders are those who must borrow funds to finance their spending. The most important borrower-spenders are businesses and the government. In a direct finance, borrowers borrow funds directly from lenders in financial markets by selling them securities (also called financial instruments), which are claims on the borrower"s future income or assets. Securities are assets for the person who buys them but they are liabilities for the individual or firm that sells them. Financial markets are essential to promoting economic efficiency. Financial markets are critical for producing an efficient allocation of capital (wealth, either financial or physical, that is employed to produce more wealth), 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.
