Financial markets - markets in which funds are transferred from people who have an excess of available

funds to people who have a shortage.

Financial markets are important- Indeed, well-functioning financial markets are a key factor in producing
high economic growth, and poorly performing financial markets are one reason that many countries in
the world remain desperately poor. Activities in financial markets also have direct effects on personal
wealth, the behavior of businesses and consumers, and the cyclical performance of the economy.
A security (financial instrument) is a claim on the issuers future income or assets (any financial claim or
piece of property that is subject to ownership).
A bond is a debt security that promises to make payments periodically for a specified period of time.
Bond market is important because it enables corporations and govs to borrow to finance their
activities and is where interest rates are determined.

Interest Rate is the cost of borrowing or the price paid for the rental of funds (usually expressed as a
percentage of the rental of $100 per year). Many types of interest rates are found ex. Mortgage interest
rates, car loan rates, and interest rates on many different types of bonds.
Important for a lot of different reasons: high interest rates could deter you from buying a house
or a car because the cost of financing it would be high.
High interest rates could encourage you to save because you earn more interest income by
putting aside some of your earnings as savings.
Interest rates affect general health of the economy because they affect consumers/businesses
investment decisions ex. High interest rates might cause a business to postpone building a new building
Different interest rates tend to move in unison, economists frequently lump interest rates together and
refer to the interest rate

The Stock Market
A common stock represents a share of ownership in a corporation. It is a security that is a claim on the
earnings and assets of the corporation.
A way for corporations to raise funds to finanacie activitews.
Most widely followed financial market in almost every country that has one.
Called the market. Place where people get rich or poor quickly
Price of shares affect business investment decisions as it affects the amount of funds that can be raised
by selling newly issued stock to finance investment spending.
A higher price for a firms shares means that I can raise a larger amount of funds, to buy production or
equipment.

Financial system is complex, comprising of many different types of private setor, financial institutions,
including banks, insurance companies, mutual funds, finance companies and investment banks all of
which are heavily regulated by the government.
Financial intermediaries institutions that borrow funds from people who have saved and in turn make
loans to others.
Financial crises major disruptions in the financial markets that are characterized by sharp declines in
asset prices and the failures of many financial and non financial firms.
Banks and other financial institutions
Banks are financial institutions that accept deposits and make loans. Under the term banks are firms
such as commercial banks, savings and loan associations mututal savings banks and credit unions.
Financial intermediary.
Financial Innovation The development of new financial products and services can be an important
force for good by making financial systems more efficient. Improvements in information technology
have led to new financial products and the ability to deliver financial services electronically in what has
become known as e-finance.
Money, also called money supply is anything that is accepted in payment for goods or services or in
repayment of debts. Money is linked to the changes in economic variables that affect al of us and are
important to the health of the economy.
Aggregate output total production of goods and services
Unemployment rate percentage of the available labor force unemployed
Business cycle upward and downward movement of aggregate output produced by the economy is
affected by money.
When output is rising, it is easier to find a job output is falling it is harder to find a good job.
Recessions are periods of declining aggregate output.
Money growth has declined before almost every recession. Not every decline thoug .
Monetary theory, the theory that relates the quantity of money and the monetary policy to changes in
aggregate economic activity and inflation.
Money and Inflation