Module 6

crowding out

a decline in private expenditures as a result of an increase in government purchases

bond

a financial security that represents a promise to repay a fixed amount of funds

stock

a financial security that represents partial ownership of a firm

indirect finance

a flow of funds from savers to borrowers through financial intermediaries such as banks; intermediaries raise funds from savers to lend to firms (and other borrowers)

direct finance

a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange

coupon payment

an interest payment on a bond

financial intermediaries

firms, such as banks, mutual funds, pension funds, and insurance companies, that borrow funds, from savers and lend them to borrowers

financial markets

markets where financial securities, such as stocks and bonds, are bought and sold

dividends

payments by a corporation to its shareholders

interest rate

the cost of borrowing funds, usually expressed as a percentage of the amount borrowed

stockholders' equity

the difference between the value of a corporation's assets and the value of its liabilities also known as net worth

market for loanable funds

the interaction of borrowers and lenders that determines the market interest rate and the quantity of loanable funds exchanged

financial system

the system of financial markets and financial intermediaries through which firms acquire funds from households

present value

the value in today's dollars of funds to be paid or received in the future