EC223 Chapter Notes - Chapter 2: Toronto Stock Exchange, Corporate Bond, Eurodollar
Document Summary
Channel funds from economic players that have surplus funds to those that have a shortage of funds. Direct finance: borrowers borrow funds directly from lenders in financial markets by selling them securities. Promotes economic efficiency by producing an efficient allocation of capital (money is never being useless, if you have a lot, than lend it to others and make profit) Directly improves the well-being of consumers of allowing them to time purchases better. Debt instruments: a contractual agreement by the borrower to pay the holder of the instrument fixed dollar amounts at regular intervals (interest and principal payments) until a specified date (the maturity date) Maturity: short-term (maturity < 1 year, intermediate-term (maturity > 1 and < 10 years, long-term (maturity > 10 years) Equity markets common stocks: some make dividend payments, equity holders are residual claimants. Primary market: new security issues sold to initial buyers. Secondary market: securities previously issued are bought and sold.
