Financial Markets and Financial Institutions
Three Types of Financial Markets
A bond is a debt security that promises periodic payments for a specified time.
A stock represents a share of ownership in a corporation.
Foreign Exchange Market
The foreign exchange market is where one country's currency is exchanged for another.
Structure of Financial Markets
Debt and Equity Markets
Primary and Secondary Markets
Exchange and Over-the-counter Markets
Money and Capital Markets
Institutions that borrow funds from people who have saved and make loans to other people, such as banks, insurance companies, finance companies.
Function of Financial Intermediaries
Engage in indirect finance
Mitigate frictions between savers and borrowers that cannot be solved directly,
- Transaction costs: time and money it takes to carry out a financial transaction.
- Asymmetric information that may lead to adverse selection and moral hazard.
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