Financial Markets, Instruments, and Market Makers

Capital Market Instruments

• The capital market raises the funds needed by DSUs to carry out their spending and investment plans.

• Exhibit 3–4
• The Principal Capital Market Instruments: Amount Outstanding, End of the Year (in Billions of Dollars)

• a Excludes federally sponsored mortgage pools.
• b As of June 30, 2001.
• Source: Federal Reserve Flow of Funds Accounts, Z1, 2nd Quarter 2001, September 18, 2001; Federal Reserve Bulletin, various issues; Banking and Monetary Statistics 1941–1970.

• Exhibit 3–5
• The Capital Market

Capital Market Instruments

• Stocks
• Equity claims
• Represent ownership of net income and assets of corporation
• Preferred stock
• Pays fixed dividend; in event of bankruptcy, preferred stock owners entitled to be paid first
• Common stock
• Pays variable dividend depending on profits left over after
• preferred stockholders have been paid
• retained earnings set aside