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Financial Markets Institution, Lecture Notes - Financial Management

Financial Management

Post: October 12th, 2011
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The Capital Allocation Process, Financial markets, Financial institutions , Stock Markets and Returns, Stock Market Efficiency
The Capital Allocation Process, Financial markets, Financial institutions , Stock Markets and Returns, Stock Market Efficiency
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CHAPTER 5 Financial Markets and Institutions Updated: September 20, 2011      The Capital Allocation Process Financial markets Financial institutions Stock Markets and Returns Stock Market Efficiency 5-1 The Capital Allocation Process    In a well-functioning economy, capital (credit) flows efficiently from those who supply capital (credit) to those who demand it. Suppliers of capital (credit) – individuals and institutions with “excess funds.” These groups are saving money and looking for a rate of return on their investment. Demanders or users of capital (credit) – individuals and institutions who need to raise funds to finance their investment opportunities. These groups are willing to pay a rate of return on the capital they borrow. 5-2 How is capital transferred between savers (Sc) and borrowers (Dc)?     Direct transfers – stocks and bonds, securities Investment banking house - Underwriting Financial intermediaries – b..

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