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Chapter 1

Chapter 1 The Financial System (highest grade in class)

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ECON 2035
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Chapter 1 The Financial SystemFinancial MarketsIaFinancial Market a collection of people and firms that buy and sell securities or currenciesbCurrencies foreign exchangecSecurity claim on some future flow of income such as a stock or bonddBond loansiBond fixedincome security Security thta promises predetermined payments at certain points in time At maturity the bond pays its face value Before that the owner may receivecoupon paymentsCoupon Bonds fixed payment loana1000 Face Value 5yrs will mature in 2014 to receive face valueCoupon Rate the percentage of face value paid every yeara550 per yearMedium Termabout 5 yrsLongtermmore than 5 yrsDiscount Bond zero coupon bond aka Commercial Paperan IOU of 2270daysaUsually 1 yr or lessbNo coupon rateno yearly paymentcBuy at discount and receive face value at maturityT Bills government discount Bond Default Risk probability of paying back the bondiiInterest payments for the use of borrowed funds iiiDefault failure to make promised payments on debts eStocksiStocks equity ownership share in a corporation Generally more risk than a bondiiStock holders Residual Clammits iiiPurpose Help flow of fund from savers to investors aSaversFinancial MarketInvestorsiSavers have fund but dont ha
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