宏观经济学学习笔记【5】-financial insitutions

financial system: the group of institutions in the economy that help to match one person's saving with another person's investment. 

financial system is made up of various financial institutions, and financial institutions can be grouped into two categories: financial markets and financial intermediaries.

Financial Markets

Financial markets: financial institutions through which savers can directly provide funds to borrowers.

1.The bond market债券市场

bond: a certificate of indebtedness that specifies the obligations of the borrower to the holder of the bond. 

It identifies the time when the loan will be repaid, called the date of muturity. 

The amount borrowed is called the principal本金.

(1) Bond's term: 债券的期限

Perpetuity：永续年金(no term)

The interest rate on bond depends, in part, on its term.

long-term - riskier - higher interest rate, and vice versa.

(2) credit risk信贷风险  the probability that the borrower will fail to pay some of the interest or principal. It called DEFAULT. Borrowers can default on their loans by declaring bankruptcy. 

The interest rate has a positive correlation to the probability of credit risks. Those bonds who have a high interest rate and a high risk called JUNK BONDS. 

Buyers of bonds can judge credit risk by checking with various private agencies.

(3)tax treatment税务处理 - the way that the tax laws treat the interest earned on the broad. 

The interest on most bonds is taxale income. The MUNICIPAL BONDS are issued by municipal governments, thus owners aren't required to pay taxes, and because of that, municipal bonds often have low interest rates. 

2.the stock market股票市场

stock: a claim to partial ownership in a firm

The sale of stock to raise money is called equity finance主权基金, whereas the sale of bonds is called debt finance债务融资

The price at which shares trade on  stock exchanges are determined by the supply of and demand for the stock in these companies.

A STOCK INDEX is computed as an average of a group of stock prices, which are available to monitor the overall economic condition.

3. financial intermediaries

financial intermediaries: financial institutions through which savers can indirectly provide funds to borrowers.

banks: provide small deposits i loans and facilitate purchases.

mutual funds: an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds.