Summary: 1 Intro

Read the summary and the most important questions on 1 intro

• 1 Why Study Money CH1

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• 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

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• 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)