FIN 320f ch. 3

The biggest stock market in the US

the New York Stock Exchange (NYSE); is a physical exchange

NASDAQ

a collection of dealers and brokers who are connected electronically, via telephones and computers; virtual exchange

over-the-counter (OTC) stock market

requires dealers to negotiate directly with one another to trade stocks. The stocks traded are stocks of companies that have poor credit ratings; market yes, exchange no

Trading in securities is facilitated by

brokers (like ebay) and dealers (like car dealers)

Brokers

match buyers and sellers and earn commissions on the resulting transactions

Dealers

buy inventory and then resell it. They make their money on the spread, that is, the difference between the purchase price and the sale price

Securities with maturities of more than a year (stocks and medium- to long-term debt instruments) are traded in??

capital markets

Securities that mature in a year or less (short-term debt instruments) are traded in??

money markets

The first time an issue of stocks or bonds is offered to the public, it is offered in?

the primary market.

When the initial buyers of stocks or bonds decide to sell their investments to other members of the investing public, the transactions take place in?

the secondary markets

The Securities and Exchange Commission (SEC) was created in response to??

the Great Depression; to regulate the issuance and trading of financial securities

Money is transferred from those who have money to those who need money through what three primary methods

direct transfer, Through an investment banker, Through a financial intermediary

Direct transfer

the money goes directly to the company that issues the security and the security goes directly to the investor.
Examples: A private placement of equity and a loan from a bank

Investment bankers

not bankers in the traditional sense. They don't accept deposits or make loans. Instead, they help companies raise money by helping those companies issue new securities to the public

financial intermediaries

facilitate the transfer of funds between those who have money and those who need money.

The Federal Reserve System (the Fed)

the central bank of the US.

What is the Fed responsible for?

regulating banks, S&Ls, and other depository institutions, clearing all of the paper checks and electronic payments in the US so that the monies get where they're supposed to go, holding the US Treasury's checking account, and, most importantly, conductin

conducting monetary policy

controlling the US money supply

The Fed is charged with controlling the money supply in order to?

limit inflation and promote economic growth
but these two goals conflict with one another

Since inflation and GDP move together, lowering one also lowers the other. The Fed has several tools:

Setting bank reserve requirements, setting the discount rate, conducting open market operations

Setting bank reserve requirements

This is the percentage of deposits that banks must hold in reserve to ensure there is cash available for those who want to make withdrawals.

Setting discount rate

This is the rate at which the Fed lends money to banks.

conducting open market operations

The Fed can buy or sell Treasury securities to change the money supply.

The Federal Reserve System (the Fed) It is responsible for regulating banks, S&Ls, and other depository institutions, clearing all of the paper checks and electronic payments in the US so that the monies get where they're supposed to go, holding the US Tr

the central bank of the US.