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Summary 1 intro

- 2021 - 2022
103 Flashcards & Notes
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A snapshot of the summary - 1 intro

  • 1 Why Study Money CH1

  • What is financial flow?
    It is the financial transfer from economic players with excess funds to players with financial needs
  • What is fund transfer?
    Capital that doesn't have productive use is now invested in useful projects
  • When do financial transfers occur?
    When there is creation of financial assets other than money.
  • What is a security?
    It is a tradable investment instrument such as stocks, bonds, financial derivatives,...
  • What happens when the firm creates value through making profit?
    The equity  (value of the stocks) will increase
  • What happens when there are losses?
    The value of the equity decreases.
  • 2 An overview of the financial system CH2

  • 2.1 Function of financial markets

  • What is the function of financial markets?
    Channeling funds from agents that have surplus funds (lender-saver) to those that have shortage funds (borrower- spender).
  • What is the difference between indirect finance and direct finance?
    With direct finance the borrowers borrow funds directly from the lenders. With indirect finance a financial intermediary borrows funds from lender-savers and uses these funds to make loans to borrower-spenders.
  • what is so important about financial markets?
    It is critical for producing an efficient allocation of capital, it directly improves the well-being of consumers.
  • 2.2 Structure of financial market

  • What are the two ways to fund in a financial market?
    - issuance of a debt instrument: a bond or a mortgage
    - Raising funds trough the issuance of equities (common stocks)
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