Chloe Fiorentino
2/14/2012
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Use the following collected data to educate your client:
A) What are the three primary ways to transfer capital between savers and borrowers? Describe each one. The three primary ways in which capital is transferred between savers and borrowers are: 1. Direct Transfers and Securities: when a business sells its stocks directly to savers, without going through any financial institution. 2. Indirect Transfers through Investment Bankers: when a business sells its stocks to an investment bank, which then underwrites the issue and sells these same securities to savers. 3. Indirect Transfers through a Financial Intermediary: when a bank (Or other form of financial intermediary such as an insurance company or mutual fund) sells its own securities to savers and uses the money it makes from the sale of its securities to purchase and hold business’ securities, while the savers hold the intermediary’s securities.
B) What is a market? Distinguish between the main types of markets. A Market: brings people and organizations wanting to borrow money together with those who have surplus funds. 1. Physical Asset Markets versus Financial Asset Markets: a) Physical Assets Markets are also called, “Tangible,” or, “Real,” asset market because are for products such as wheat, autos, real estate, computers, and machinery. b) Financial Asset Markets deal with stocks, bonds, notes, mortgages, and derivative securities. An example of a, “Pure Financial Asset,” is a share of Ford stock, while an option to buy a Ford shares is a derivative security whose value depends on the price of Ford stock. 2. Spot Markets versus Future Markets: a) Spot Markets are markets in which assets are bought and sold for, “On- the –spot,”