Savings, Investment, and Finance

Institutions that help to match one person’s saving with another person’s investment are collectively called the financial system
Given that Monika’s income exceeds her expenditures, Monika is best described as a saver or as a supplier of funds
Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else, their consumption expenditures are being financed by someone else’s saving
At the broadest level, the financial system moves the economy’s scarce resources from savers to borrowers
The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called credit risk
As an alternative to selling shares of stock as a means of raising funds, a large company could, instead sell bonds
Two of the economy’s most important financial intermediaries are banks and mutual funds
A bond is a certificate of indebtedness
If the government’s expenditures exceeded its receipts, it would likely sell bonds directly to the public
The sell of bonds to raise money is called debt finance, while the sale of stocks to raise funds is called equity finance
What makes the interest rate on a bond higher than normal? both high credit risk and long time
As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is borrowing directly

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