NOTE 6: MARKETS, INSTITUTIONS, AND INTEREST RATES n The Financial markets n Financial Intermediaries n Stock Market n Factors affecting Cost of Money n Fisher Effect n Determinants of Interest Rates n Other Factors that Influence Interest Rate Levels I. Types of Financial Markets v Physical Asset markets Ø Markets for products (wheat, auto, computer, etc.) v Financial Asset Markets Ø Markets for stocks, bonds, mortgages, derivatives, etc. v Spot Markets Ø Markets for on-the-spot- delivery. v Futures Markets Ø Markets for future delivery. v Money Markets Ø Markets for S-T securities. v Capital Markets Ø Markets for intermediate or L-T securities. v Primary Markets Ø Markets that firms raise new capital. v Secondary Markets Ø Markets that financial assets are traded among investors. v Private Markets Ø Markets that transactions are worked out directly between 2 parties. v Public Markets Ø Markets that standardized contracts are traded on organized exchanges. II. Type of Financial Intermediaries v Commercial Banks Ø Deposits, Loans, Stock brokerage services, Insurance, etc. v Savings and Loan Associations (or “Mutual Savings Banks” in Northeastern states) Ø Serve small savers and residential & commercial mortgage borrowers. 1 v Credit Unions Ø Serve only within member group (i.e., employees of the same firm) v Pension Funds Ø Retirement plans funded by firms or government for their workers. v Life Insurance Companies Ø Take savings in the fo ...
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