Financial system

Financial Intermediaries

Institutions that help match savers with borrowers; typically banks.

Bank Run

When many bank customers withdraw their savings simultaneously, which can lead to bank collapse.

Shadow Banks

Financial firms that operate like banks but are not regulated like banks and lack deposit insurance.

Bond

An IOU; a loan made by an investor to a company or government, with a promise of interest payments and principal repayment.

Stock

Represents partial ownership in a firm and claims to its profits.

Efficient Market Hypothesis

Theory that stock prices reflect all publicly available information at any given time.

Speculative Bubble

When asset prices rise above their fundamental value due to expectations, eventually leading to a price crash.

Equity Finance vs. Debt Finance

Equity finance involves issuing stock to raise funds, while debt finance involves issuing bonds.