purchases of goods and services is money . Currency and checking accounts are forms of money. Equities represent ownership shares in a business firm and are [r]
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Financial Assets, Money, Financial Transactions, and
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Learning Objectives
• To learn about the channels through which funds flow between
lenders and borrowers within the global system of money and capital markets
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ã Toexplorethecriticalrolesplayedbymoneywithinthe
financial system and the linkages between money and inflation in the prices of goods and services.
• To examine the important functions carried out by financial
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MoneyandCapitalMarkets,9/e â2006TheMcGrawưHillCompanies,Inc.,AllRightsReserved.
Introduction:TheRoleofFinancial Assets
ã The financial system is the mechanism through which loanable
funds reach borrowers
• Through the operation of the financial markets, money is exchanged for financial claims in the form of stocks, bonds, and other securities, thereby transforming savings into
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Afinancialassetis
ã a claim against the income or wealth of a business firm,
household, or unit of government,
• represented usually by a certificate, receipt, computer record file, or other legal document,
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Money and Capital Markets, 9/e © 2006 The McGrawHill Companies, Inc., All Rights Reserved.
Characteristics of Financial Assets
ã Financialassetsaresoughtafterbecausetheypromisefuture
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• They do not depreciate like physical goods, and their physical
condition or form is usually not relevant in determining their market value
• They have little or no value as a commodity and their cost of transportation and storage is low
• Financial assets are fungible – they can easily be changed in
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Money and Capital Markets, 9/e © 2006 The McGrawHill Companies, Inc., All Rights Reserved.
Different Kinds of Financial Assets
Any financial asset that is generally accepted in payment for
purchases of goods and services is money. Currency and checking accounts are forms of money
Equities represent ownership shares in a business firm and are
claims against the firm’s profits and against proceeds from the sale of its assets. Common stock and preferred stock are
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Money and Capital Markets, 9/e © 2006 The McGrawHill Companies, Inc., All Rights Reserved.
Debt securities entitle their holders to a priority claim over the
holders of equities to the assets and income of an economic unit. They can be negotiable or nonnegotiable. Examples
include bonds, notes, accounts payable, and savings deposits
Derivatives have a market value that is tied to or influenced by