EC223 Chapter Notes - Chapter 2: Corporate Bond, Eurodollar, Foreign Exchange Market
Document Summary
Chapter 2: an overview of the financial system. Direct finance borrowers borrow funds directly from lenders in financial markets by selling them securities (financial instruments) which are claims on the borrower"s futures income/assets. Ways to obtain funds in a financial market: issue debt. Contractual agreement to pay the holder of the instrument fixed $ at regular intervals until an end date: issue equity. The main disadvantage of owning a corporation"s equities rather than its debt is that a corporation must pay all its debt holders before it pays its equity holders. The advantage of holding equities is that equity holders benefit directly from any increases in the corporation"s profitability or asset value because their confer rights of ownership. Primary market a financial market in which new issues of a security, such as a bond or a stock are sold to initial buyers by the corporation or government agency borrowing the funds.
