Chapter 2: An Overview of the Financial System. Classifying Financial Markets Financial Market Instruments Financial Intermediaries Regulation. I. Classification Debt vs. Equity Markets. debt security cash flows are fixed bonds, loans equity security cash flow variable, residual
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-- investment banking
a security or financial instrument
= claim on future income or assets of issuer
a security is an asset for the buyer,
but a liability for the issuer
Why have them?
-- by financial institutions
-- markets cease to function
-- restrict ownership
-- restrict activities
-- insurance on deposits