Module 16: Financial Markets

This chapter explores how the global financial crisis has influenced home ownership. When a firm needs to buy new equipment or build a new facility, it often must go to the financial market to raise funds. Usually firms will add capacity during an economic expansion when profits are on the rise and consumer demand is high. Business investment is one of the critical ingredients needed to sustain economic growth.  On the other side of the financial capital market, financial capital suppliers, like households, wish to use their savings in a way that will provide a return. Individuals cannot, however, take the few thousand dollars that they save in any given year, write a letter to General Motors or some other firm, and negotiate to invest their money with that firm. Financial capital markets bridge this gap: that is, they find ways to take the inflow of funds from many separate financial capital suppliers and transform it into the funds of financial capital demanders desire. Such financial markets include stocks, bonds, bank loans, and other financial investments. Our perspective then shifts to consider how these financial investments appear to capital suppliers such as the households that are saving funds. Households have a range of investment options: bank accounts, certificates of deposit, money market mutual funds, bonds, stocks, stock and bond mutual funds, housing, and even tangible assets like gold. Finally, this chapter investigates two methods for becoming rich: a quick and easy method that does not work very well at all, and a slow, reliable method that can work very well over a lifetime.

1. Describe financial capital and how it relates to profits
2. Discuss the purpose and process of borrowing, bonds, and corporate stock
3. Explain how firms choose between sources of financial capital
4. Show the relationship between savers, banks, and borrowers
5. Calculate bond yield
6. Contrast bonds, stocks, mutual funds, and assets
7. Explain the tradeoffs between return and risk
8. Explain the random walk theory
9. Calculate simple and compound interest
10. Evaluate how capital markets transform financial capital

To achieve these objectives: [Edit these items to match your resources and activities.]

1. Read the Module 16 Introduction 
   
2. Read Chapter 16 in the course textbook, Microeconomics
3. Complete Module 16 Discussion Forum
4. Complete Module 16 Quiz.
   
5. For course instructors, list any other reading assignments here. [Include all reading assignments here that are outside of Moodle. Be as concise as possible. More information can be included in the third-party section below, if necessary.]
   
6. Complete the [specific activities in the module. Include all in the order you want them completed.]

Module Pressbooks Resources and Activities