IB 201 Chapter Notes - Chapter 9: Interbank, Computer Network, Eurocurrency
16 Nov 2016
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Capital market: system that allocates financial resources in the form of bet and equity according to their most efficient uses. Main purpose is to provide a mechanism through which those who wish to borrow or invest money can do so efficiently: purpose of national capital markets. 2 primary ways companies obtain external financing. Debt: loan in which the borrower promises to repay the borrowed amount (the principle) plus a predetermined rate of interest, normally in the form of bonds. Bond debt instrument that specifies the timing of principal and interest payments. Equity: part ownership of a company in which the equity holder participates with other part owner in the company"s financial gains and losses, normally in the form of stock. Stock- shares of ownership in a company"s assets that give shareholders a claim on the company"s future cash flow. Dividend payments are not guaranteed but are determined by a companies board of directors. Payments made out of surplus funds: liquidity.
