CHAPTER THREE THE MARKETPLACE Practical Investment Management Robert A Strong
THE MARKETPLACE CHAPTER THREE Practical Investment Management Robert A. Strong
The role of the Capital Markets An exchange serves three principal functions. ◆ Economic Function Continuous Pricing Function Fair Pricing Function Strong C3-The Marketplace 3-2
3 - 2 Strong C3 – The Marketplace An exchange serves three principal functions. The Role of the Capital Markets Continuous Pricing Function Fair Pricing Function Economic Function
Economic Function Capital markets facilitate the flow of capital from savers to borrowers Capital Savers Borrowers Capital Market Strong C3-The Marketplace 3-3
3 - 3 Strong C3 – The Marketplace Capital markets facilitate the flow of capital from savers to borrowers. Capital Savers Borrowers Capital Market Economic Function
Economic Function: An Example Mortgage Bank Banks offer home mortgages so that home Home Buyer buyers who are short of cash can borrow money Home to buy houses Ownership Home seller Strong C3-The Marketplace 3-4
3 - 4 Strong C3 – The Marketplace Bank Banks offer home mortgages so that home buyers who are short of cash can borrow money to buy houses. $ $ Mortgage Home Seller Home Buyer Home Ownership Economic Function: An Example
Economic Function: An Example Mortgage Bank Facilitated by government agencies such as the federal national Govt aaaa Mortgage Association, banks Agency sell the mortgages to investors with surplus cash s/Mortgage- backed securities Investors Strong C3-The Marketplace 3-5
3 - 5 Strong C3 – The Marketplace $ $ Mortgage Mortgagebacked securities Bank Investors Gov’t Agency Facilitated by government agencies such as the Federal National Mortgage Association, banks sell the mortgages to investors with surplus cash. Economic Function: An Example