Wednesday, September 2, 2009

Risk in the Money and Capital Markets (2)

Financial claims issued by demanders of funds also differ greatly in their degree of risk due to fluctuations in market price- money risk. For example, most short-term money market securities are quite stable in price, holding their value well even in periods of considerable economic turmoil and uncertainty. In contrast, long-term capital market securities frequently experience large price fluctuations due to changing economic conditions, political developments, and so on. Some securities are more easily marketed than others, and there are vast differences in maturity. For example, all U.S. Treasury bills mature within a year. In contrast, most home mortgages and many corporate bonds carry original maturities of 20 to 39 years. While, in theory at least, the financial markets are one vast pool of funds, quite clearly the financial system is divided into many segments, each with special features. .

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