suppose that you want to start a business that manufactures a recently invented low 638211

Suppose that you want to start a business that manufactures a recently invented low cost robot that cleans the house (even does windows), mows the lawn, and washes the car, but you have no funds to put this wonderful invention into production. Walter has plenty of savings that he has inherited. If you and Walter could get together so that he could provide you with the funds, your company”s robot would see the light of day, and you, Walter, and the economy would all be better off: Walter could earn a high return on his investment, you would get rich from producing the robot, and we would have cleaner houses, shinier cars, and more beautiful lawns. Financial markets (bond and stock markets) and financial intermediaries (banks, insurance companies, pension funds) have the basic function of getting people such as you and Walter together by moving funds from those who have a surplus of funds (Walter) to those who have a shortage of funds (you). More realistically, when Apple invents a better iPod, it may need funds to bring it to market. Similarly, when a local government needs to build a road or a school, it may need more funds than local property taxes provide. Well functioning financial markets and financial intermediaries are crucial to our economic health. To study the effects of financial markets and financial intermediaries on the economy, we need to acquire an understanding of their general structure and operation. In this chapter we learn about the major financial intermediaries and the instruments that are traded in financial markets. This chapter offers a preliminary overview of the fascinating study of financial markets and institutions. We will return to a more detailed treatment of the regulation, structure, and evolution of financial markets and institutions in Parts 3 through 7.