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financial system  The collection of markets, individuals, institutions, laws, regulations, and techniques through which bonds, stocks, and other securities are traded, financial services are produced and delivered, and interest rates are determined.
market  An institutional mechanism for trading goods and services.
financial market  An institutional mechanism created by society to channel savings and other financial services to those individuals and institutions willing to pay for them.
savings  The amount of funds left over out of current income after current consumption expenditures are deducted or, for a business firm, the current net earnings retained in the business instead of paid out to the owners.
investment  Expenditures on capital goods or on inventories of goods or raw materials that are used to produce other goods and services, causing future production and income to rise.
wealth  Accumulated assets held by an economic unit as a result of saving.
financial wealth  Portion of the wealth held by society or by an individual economic unit in the form of stocks, bonds, and other financial assets.
net financial wealth  Portion of wealth held in financial assets less total debt owed.
liquidity  The quality or capability of any asset to be sold quickly with little risk of loss and possessing a relatively stable price over time.
credit  A loan of funds in return for a promise of future payment.
money market  The institution set up by society to channel temporary surpluses of cash into temporary loans of funds, one year or less to maturity.
capital market  The institution that provides a channel for the borrowing and lending of long-term funds (over one year).
open markets  Institutional mechanisms created by society to make loans and trade securities in which any individual or institution can participate.
negotiated markets  Institutional mechanisms set up by society to make loans and trade securities in which the terms of trade are set by direct bargaining between a lender and a borrower.
primary markets  Institutional mechanisms set up by society to trade newly issued loans and securities.
secondary markets  Institutional mechanisms set up by society to trade or exchange loans and securities that have already been issued.
arbitrage  The purchase of an asset in one market and the sale of that asset in another market in response to differences in price or yield between the two markets.
perfect market  A market in which all available information affecting the value of financial instruments is freely available to everyone, transaction costs are minimal, and all participants are price takers rather than price setters.
efficient market  A competitive market in which the prices of financial instruments traded there fully reflect all the latest information available.
asymmetric information  The concept that different participants in the financial markets often operate with different sets of information, some possessing special or inside information that others do not possess.







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