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Macro 2 Mid-Term

Chapters 8-11

QuestionAnswer
What are the 3 roles financial systems do? Intermediation, provide liquidity and diversify risk
What are the major players in the financial system? Savers, Entreprenuers + Businesses, Spectators and Financial intermediaries
What does commertial banks and trust companies do? pay depositors interest and charge borrowers high interest loans to maximize their profits
what do mutual funds do? sell shares in a fund to the public and uses the proceeds to buy portfolio's of stock and bonds
the two kinds of pension funds? defined benefit and defined contribution
Debt vs. Equity Debt has bonds that have a fixed income on them therefore have lower risk and return while Equity has a higher rate and return in developing countries
Asset Valudation the value of an asset is determined by the present value of its expected cash flows
3 approaches to choosing stock Throw a dart, fundamental and technical analysis
How is Throw a Dart just as effective as the others? Through the Efficient Market Hypothesis, where it requires all info and therefore, accurately represents the stock value as correctly as possible
Disadvantages of the 2 other approaches to choosing stock they only work when the current price differs from the correct price, where info could not be publicly avaliable
Private saving portion of households income that is not used for consumption, taxes or transfers
National saving portion of national income that is not used for consumption
Savings (Private) vs. Investment Savings "parks" the money for use at a later time or the buying of stocks and bonds while Investment is buying new capital or using the money directly
Created by: evehec
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