DAY 1 - JUNE 26

Functions of financial markets

Capital - financial or physical, that is employed to produce more wealth
(functions of financial markets) promotes economic efficiency by producing an efficient allocation of capital, which increases production
time purchases better - think of your life, you can wait until you can accumulate enough wealth to purchase an item that could not be purchased before. We are able to consume the things sooner. Earlier is better. Things that are better to consume earlier in life rather than later in life.
people who have capital often lend it out, either directly or indirectly. indirectly can be done through institutions such as banks, etc.
debt markets and equity markets (the two kinds of markets)
debt instruments examples: bonds, mortgages, etc.
UNDERSTAND HOW BONDS WORK
THE BORROWER PAYS THE HOLDER OF THE INSTRUMENT (IN THIS CASE THE BOND), maturity date is when the you finish paying the debt.
Equation - Stock, how they work. => (stocks obviously do not have a maturity date) you might get paid dividends,
investment banks underwrite securities in primary markets, brokers and dealers work in secondary markets
Two kinds of markets within secondary markets. exchanges: NYSE, CHICAGO BOARD OF TRADE ; OTC: Foreign exchange, federal funds
MONEY MARKETS - SHORT TERM DEBT
CAPITAL MARKETS - LONG TERM DEBT
Internationalization of financial markets - Foreign bonds, sold in a foreign country and denominated in the country's currency. Eurobond: bond denominated in a currency other than that of the country in which it is sold. foreign currencies deposited in banks outside the U.S
Diversification - not putting all your eggs in one basket.
Adverse selection - (before the transaction _ when a bank is considering lending money the costumer knows if they are or are not likely to pay them back.
Moral hazard - (after the transaction) - Main difference with adverse selection is the timing, before or after.

DAY 2 - JUNE 27

WHAT MONEY IS?
Anything that is generally accepted in payment for goods or services or in the repayment of debts
Currency is paper and coins
wealth is the total collection of places of property that serve to store value - ex. real estate, art, land, bonds etc.
income is the flow of earnings per unit of time - ex. paychecks, allowances, etc.
economic efficiency is promoted by the mediums of exchange i.e money and currency used for trading goods and services
Unit of account is used to ensure the value in an economy, and reduces the transactions costs.
Store of Value is used to save purchasing power over time
FIAT MONEY - paper money decreed by governments as legal tender.
M1 - MOST LIQUID ASSETS = currency + traveler's checks demand deposits + checkable deposits.
M2 - M1 + small denominations time deposits + savings deposits and money market deposit accounts + money market mutual fun shares

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