Tafatafa Maiava
FIN/370
Week #2 Individual Assignment
October 17, 2011
Professor Cindy Bayer

#14-1)
What are financial markets? What function do they perform? How would an economy be worse off without them?
Financial markets are described as any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies, and derivatives.

Financial markets provide a mechanism for an investor to sell a financial asset, reduces the search and information costs of transacting and the interactions of buyers and sellers in a financial market determine the price of the traded asset. The six basic functions of financial markets are borrowing and lending, price determination, information aggregation and coordination, risk sharing, liquidity and efficiency.

The economy would be worse off without financial markets because it would decrease the wealth of the economy as well as the rate of capital formation.

#14-3)
Distinguish between the money and capital markets.
The money market is the market for shorter-term securities, generally those with one year or less remaining to maturity and the capital market is the market for longer-term securities, those with more than one year to maturity.

The money market consists of US Treasury bills, bank certificates of deposit, and federal funds while the capital market consists of corporate stocks, government securities and bank commercial loans.

#14-4)
What major benefits do corporations and investors enjoy because of the existence of organized security exchanges?
The three major benefits that investors enjoy are providing a continuous market, establishing and publicizing fair security prices and helping businesses raise new capital.

#15-12A. (Break-even point)

You are a hard-working analyst in the office of financial operations for a manufacturing firm that produces a