Unit 7 key concepts - 94350

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            Financial system; refers to a system which allows transfer of money between investors and borrowers. A financial system can either be defined at a firm specific level, global or regional level (Solow, 1956). At a regional level, it is a system which enables borrowers and lenders to exchange money. At the firm's level, it is a set of implemented guidelines that track the firms` financial activities. The global financial system is a broader system that involves all the financial institutions, lenders and borrowers at the global level.

Financial markets are places either real or virtual or structures where financial instruments are created traded and in some cases retired (Kuznets, 1955). They provide a platform where buyers and sellers meet to buy and seller securities. The prices of securities are regulated by the market itself. Financial markets can either be capital markets or money market. Capital markets trade in long term securities while money markets trade in short term securities. An example of a capital market is New York stock exchange

Bond; is a long term financial instrument issued by either firms or government and represents a debt owned by the issuer to the investor (Solow, 1956). Bonds obligate the issuer to pay a specified amount at a given date with periodic payments. The amount that the issuer must pay at at maturity is known as par value while the rate of interest the issuer must pay is known as the coupon rate .The types of bonds include; treasury bonds, municipal bonds and corporate bonds.




Stock; a stock of a company constitutes the company’s stake of its owners (Kuznets, 1955). The stock represents the amount of residual assets the company  would allocate  to shareholders after discharging  all  claims  to the company such as unsecured  and secured debts .There are two types of stock; common stocks and preferred stocks. Common stock has voting rights but preferred stockholders don’t have the right to vote. However preferred stockholders receive preferential dividend treatment, they are paid first when dividends are declared.

Financial intermediaries; refers to