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An overview of capital market instruments, including stocks, corporate bonds, u.s. Government bonds, u.s. Government agency securities, and state and local government bonds. The text also covers financial intermediaries, their functions, and the problems of adverse selection and moral hazard. Taken from eco 350 money and banking course.
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-^ Stocks •^ Corporate Bonds^ » Interest payments twice a year» Convertible and non-convertible» Not as liquid as U.S. government bonds
Topic 2, page 25 ECO 350 • Money and Banking
»^ Not as liquid as U.S. government bonds
-^ Stocks •^ Corporate Bonds •^ U.S. Government Bonds^ » Issued by the U.S. Treasury» Finance the deficits of the federal government
Topic 2, page 26 ECO 350 • Money and Banking
»^ Finance the deficits of the federal government
-^ Stocks •^ Corporate Bonds •^ U.S. Government Bonds •^ U.S. Government Agency Securities •^ State and Local Government Bonds
Topic 2, page 28 ECO 350 • Money and Banking
-^ State and Local Government Bonds^ » Municipal bonds
-^ Stocks •^ Corporate Bonds •^ U.S. Government Bonds •^ U.S. Government Agency Securities •^ State and Local Government Bonds
Topic 2, page 29 ECO 350 • Money and Banking
-^ State and Local Government Bonds •^ Mortgages
Topic 2, page 31
Table 1. Principal Money Market Instruments
Topic 2, page 32
Table 2. Principal Capital Market Instruments
an institution that borrows funds from one group of people in order to lend them to anotherB. Types of financial intermediaries^ i. Depository Institutions:
includes commercial banks (7150), Savings and Loan Associations (S&Ls) and Mutual Savings Banks
Topic 2, page 34 ECO 350 • Money and BankingDocsity.com
an institution that borrows funds from one group of people in order to lend them to anotherB. Types of financial intermediaries^ i. Depository Institutions:
includes commercial banks (7150), Savings and Loan Associations (S&Ls) and Mutual Savings Banks
Topic 2, page 35 ECO 350 • Money and Banking
(1225), Credit Unions (8100) ii. Contractual Savings Institutions:
Topic 2, page 37 Docsity.com
Type of Intermediary
2005 2006
2007
2008
Depository Institutions
Commercial Banks
9,320.^
10,202.9^ 11,194.
12,272.
S&L Associations and Mutual
Savings Banks
1,789.^ 1,714.9^ 1,815.
1,518.
Credit Unions
685.^
716.2^ 758.
801.
Contractual Savings Institutions^ Life Insurance Companies
4,350.^
4,685.3^ 4,949.
4,798. Value of Assets ($ billions, end of year)
TABLE 4: Principle Financial Intermediaries and Values of Their Assets
ECO 350 • Money and Banking
Life Insurance Companies
4,350.^
4,685.3^ 4,949.
4,798.
Fire and Casualty Insurance
1,239.6Companies 1,329.^
1,358.8^ 1,337.
Pension Funds (private)
5,295.^
5,885.4^ 6,152.
5,192.
State and Local GovernmentRetirement Funds
2,721.^ 3,049.6^ 3,157.
2,730.
Investment Intermediaries
Finance Companies
1,856.^
1,891.2^ 1,911.
1,910.
Mutual Funds
6,048.^
7,068.3^ 7,829.
6,588.
Money Market Mutual Funds
2,006.^
2,312.1^ 3,053.
3,376.
in i. Contracting (reducing transaction costs)•^ Transaction costs
are the time and money spent in carrying out financial transactions.ii. Diversification and Asset Transformation (sharing
Topic 2, page 40 risk ) ECO 350 • Money and Banking
ii.^ Diversification and Asset Transformation (sharing
risk )
in i. Contracting (reducing transaction costs)•^ Transaction costs
are the time and money spent in carrying out financial transactions.ii. Diversification and Asset Transformation (sharing
Topic 2, page 41 risk ) ECO 350 • Money and Banking
ii.^ Diversification and Asset Transformation (sharing
risk )
iii. Creating liquidity (making transactions easier)iv. Handling^ asymmetric information
Problem created by asymmetric information before^ transaction is madei. The potential borrowers who are the most likely to produce anundesirable (adverse) outcome are bad credit risks.ii. These bad credit risks are the ones who most actively seek out aloan and are thus most likely to be selected.
Topic 2, page 43 ECO 350 • Money and Banking
loan and are thus most likely to be selected. iii. Handled with
screening^ out bad credit risks from good ones. E. Moral hazard:
Problem created by asymmetric information
after
transaction is madei. Borrowers engage in activities that are undesirable (immoral)from the lenders point of view.ii. Handled with
monitoring
financial panics
Topic 2, page 44 Docsity.com
