Summary Chapter 2 B&F

Chapter 2: Financial markets &
institutions
1. The importance of financial markets and institutions

 Two main sources of financing Where to get
- financial markets our money?
- financial institutions



 Financing decisions
- equity VS debt
- short term (~ sale of financial assets) VS long term (~raising capital)



Examples of financing decisions by Apple Computer p.34

, 2. The flow of savings to corporations

p.37




 Channeling
funds from households, firms and governments with a budget surplus (by spending less than




Financial intermediaries




their income) to those with a shortage of funds (because they spend more)



Structure of financial markets

Overview (more detailed explanation than the book)

2 ways to obtain funds for firms / individuals

1) Insurance of debt instruments (= fixed-income
Primary & securities/fixed-income market)
Debt & Equity
Secondary  Contractual agreement (mortgage, bond,
Markets …)
Markets  Borrower pays the holder of the
instrument fixed (interest and/or capital)
amounts
Money &
Exchange &  Repayment schedule & maturity date
Capital
OTC Markets
Markets