How do borrowers raise money for

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1 Preview Objectives After studying this section you will be able to: 1. escribe the characteristics of bonds as financial assets. 2. Identify different types of bonds. 3. escribe the characteristics of other types of financial assets. 4. Explain four different types of financial asset markets. How do borrowers raise money for investment? One of the most important ways is by selling bonds. As you read in 8, bonds are certificates sold by a company or government to finance projects or expansion. For example, starting in 1942, the United States epartment of Treasury launched bond drives to encourage Americans to buy war bonds government savings bonds that helped finance World War II. Movie stars and war heroes urged the public to buy bonds. Even school children brought their dimes and quarters to school each week, buying defense stamps that would eventually add up to the price of a war bond. onds as Financial Assets onds are basically loans, or IOUs, that represent debt that the government or a corporation must repay to an investor. onds typically pay the investor a fixed amount of interest at regular intervals for a fixed amount of time. onds are generally lower-risk investments. As you might expect from your reading about the relationship between risk and return, the rate of return on bonds is usually also lower than for other investments. E K Y U L I G N I CONCE P T S Interest Rates To build understanding of the concept of interest rates and investment opportunities, have students complete a tree map graphic organizer like the one shown at the right. Remind students that a tree map shows an outline of a main topic, main ideas, and supporting details. They should place the title Financial Assets at the top of the organizer. Each main heading in the section can go into one of the next tier of boxes, with supporting details listed below. onds and Other Financial Assets Section Focus Corporations and governments borrow money by selling bonds and other financial assets. The corporation or government pays the purchaser interest on the bonds and repays the principal, or money borrowed, at a specified time. The Three Components of onds onds have three basic components: Coupon rate The coupon rate is the interest rate that the bond issuer will pay to the bondholder. Maturity Maturity is the time at which payment to the bondholder is due. Graphing the Main Idea Key Terms coupon rate maturity par value yield savings bond municipal bond corporate bond Securities and Exchange Commission junk bond capital market money market primary market secondary market coupon rate the interest rate that a bond issuer will pay to a bondholder maturity the time at which payment to a bondholder is due This poster used powerful images to convince people to buy war bonds during World War II. Section Reading Support Transparencies A template and the answers for this graphic organizer can be found in 11, Section 2 of the Section Reading Support Transparency System. onds and Other Financial Assets Objectives You may wish to call students attention to the objectives in the Section Preview. The objectives are reflected in the main headings of the section. ellringer Ask students whether they have ever heard the expression His word is as good as his bond. Explain that it means that a person s word is as trustworthy as a financial arrangement for which a person has legal liability. Tell the class that in this section they will learn about bonds and promises. Vocabulary uilder Have students read through the section to find the meaning of each key term. Then ask them to create a matching quiz with the key terms. Lesson Plan Teaching the Main Concepts 1. Focus onds provide a popular way for institutions to raise capital and for investors to seek a reasonable rate of return on their investments. Ask students to identify any kinds of bonds with which they are familiar. 2. Instruct egin by explaining the characteristics and types of bonds. Explain how bonds are rated and what the ratings mean. Then introduce students to other types of financial assets along with the advantages and drawbacks of each. Finally, discuss financial asset markets. 3. Close/Reteach Remind students that borrowers and investors use bonds and other financial assets to achieve specific financial goals. Ask students to recall the different types of bonds and to rate their respective risks. Guided Reading and Review Unit 4 folder, p. 15 asks students to identify the main ideas of the section and to define or identify key terms. 277

2 Ask students to create a fact sheet that explains the characteristics of bonds as financial assets. Remind them that the fact sheet should be aimed at people who do not understand what bonds are or how they work. Encourage students to use a format (such as question and answer) that allows them to explain bonds concisely. ackground Economics in History The war bond drives of World War II featured famous entertainers and bolstered public support for the war. However, these bond drives added little to the nation s war chest. World War II cost the federal government about $321 billion, of which 41 percent came from taxes. Where did the rest of the money come from? The answer lies in defense economics, of which war finance is a branch. Generally wars are financed by taxes, compulsory loans, voluntary domestic loans, foreign loans, and printing of new money. Compulsory loans are short-term, mandatory loans made to government by the public. Usually the public thinks of these loans as taxes. Voluntary domestic loans result from the sale of government bonds. Some are purchased by the public, in the form of war bonds, but the rest are financed by banks. The least desirable form of war financing is the printing of new money. A government that is forced to print money has probably exhausted all other borrowing options. The more money it prints, the less that money is worth. If the government prints enough new money, the currency will become worthless. uilding Key Concepts Rising interests rates drive bond prices down. par value the amount that an investor pays to purchase a bond and that will be repaid to the investor at maturity yield the annual rate of return on a bond if the bond were held to maturity $ ifferent bonds have different lengths of maturity. onds typically mature in 10, 20, or 30 years. Par value A bond s par value is the amount that an investor pays to purchase the bond and that will be repaid to the investor at maturity. Par value is also called face value or principal. Suppose that you buy a bond from the corporation Jeans, Etc. The investor who buys the bond is called the holder. The seller of a bond is the issuer. You are therefore the holder of the bond, and Jeans, Etc. is the issuer. The components of this bond are as follows: Coupon rate: 5 percent, paid to the bondholder annually Maturity: 10 years Par Value: Figure 11.3 iscounts from Par 1. Sharon buys a bond with a par value of at 5 percent interest. $960 ond purchase without discount from par 2. Interest rates go up to 6 percent. Econ 101: Key Concepts Made Easy Interest Rates Explain to students that a bond s maturity is the time at which payment to the bondholder is due. At that point the bondholder receives the par value of the bond, and the company s debt is repaid. While the bond is maturing, the bondholder receives interest payments determined by the coupon ond 3. Sharon needs to sell her bond. Nate wants to buy it, but is unwilling to buy a bond at 5 percent interest when the current rate is 6 percent. 4. Sharon offers to discount the bond, taking $40 off the price and selling it for $960. = 5. Nate accepts the offer. He now owns a bond paying 5 percent interest, which he purchased at a discount from par. = ond purchase with discount from par ond Investors can earn money by buying bonds at a discount, called a discount from par. Interest Rates How do interest rates affect bond prices? How much money will you earn from this bond, and over what period of time? The coupon rate is 5 percent of per year. This means that you will receive a payment of $50 (.05 times ) each year for ten years, or a total of $500 in interest. In ten years, the bond will have reached maturity, and Jeans, Etc. will retire the debt. This means that the company s debt to you will have ended, and that Jeans, Etc. will pay you the par value of the bond, or. Thus, for your investment, you will have received $1,500 over a period of ten years. Not all bonds are held to maturity. Over their lifetime they might be bought or sold, and their price may change. ecause of these shifts in price, buyers and sellers are interested in a bond s yield, or yield to maturity. Yield is the annual rate of return on the bond if the bond were held to maturity (5 percent in the example above involving Jeans, Etc.). uying onds at a iscount Investors earn money from interest on the bonds they buy. They can also earn money by buying bonds at a discount, called a discount from par. In other words, if Nate were buying a bond with a par value of, he may be able to pay only $960 for it. When the bond matures, Nate will redeem the bond at par, or. He will thus have earned $40 on his investment, in addition to interest payments from the bond issuer. Why would someone sell a bond for less than its par value? The answer lies in the fact that interest rates are always changing. For example, suppose that Sharon buys a bond at 5 percent interest, which is the current market rate. A year later, she needs to sell the bond to help pay for a new car. y that time, however, interest rates have risen to 6 percent. No one will pay for Sharon s bond at 5 percent interest when they could go elsewhere and buy a bond at 6 percent interest. For Sharon to sell her bond at 5 percent, she will have to sell it at a discount. (See Figure 11.3.) rate. Ask students to work in pairs and present each other with various coupon rates, maturities, and par values. Each pair of students should calculate the return on the investment they describe. 278

3 Figure 11.4 ond Ratings Standard & Poor s Highest investment grade High grade Upper medium grade Medium grade Lower medium grade Speculative Vulnerable to default Subordinated to other debt rated CCC Subordinated to CC debt ond in default AAA AA A CCC CC C ond Ratings How does an investor decide which bonds to buy? Investors can check bond quality through two firms that publish bond ratings. Standard & Poor s and Moody s rate bonds on a number of factors, including the issuer s ability to make future interest payments and to repay the principal when the bond matures. These companies rating systems rank bonds from the highest investment grade (AAA in the Standard & Poor s system or Aaa in the Moody s rating system) to the lowest ( in both systems). A bond rating of generally means that the bond is in default that is, the issuer has not kept up with interest payments or has defaulted on paying principal. The higher the bond rating, the lower the interest rate the company usually has to pay to get people to buy its bonds. For example, a AAA bond may be issued at a 5 percent interest rate. A bond, however, may be issued at a 7.5 percent interest rate. The buyer of the AAA bond trades off a lower interest rate for lower risk. The buyer of the bond trades greater risk for a higher interest rate. Similarly, the higher the bond rating, the higher the price at which the bond will sell. For example, a bond with an AAA Moody s est quality High quality Upper medium grade Medium grade Possesses speculative elements Generally not desirable Poor, possibly in default Highly speculative, often in default Income bonds not paying income Interest and principal payments in default Standard & Poor s and Moody s rate bonds according to their assessments of the issuer s ability to make interest payments and to repay the principal when the bond matures. Income What bond rating carries the least risk? Aaa Aa A aa a Caa Ca C (or triple A ) rating may sell at $1,100. A bond with a rating may sell for only $950 because of the increased risk that the seller could default. In essence, holders of bonds with high ratings who keep their bonds until maturity face relatively little risk of losing their investment. Holders of bonds with lower ratings, however, take on more risk in return for potentially higher interest payments. Advantages and isadvantages to the Issuer From the point of view of the investor, bonds are good investments because they are relatively safe. onds are desirable from the issuer s point of view as well, for two main reasons: 1. Once the bond is sold, the coupon rate for that bond will not go up or down. For example, when Jeans, Etc. sells bonds, it knows in advance that it will be making fixed payments for a specific length of time. 2. Unlike stockholders, bondholders do not own a part of the company. Therefore, the company does not have to share profits with its bondholders if the company does particularly well. L4 Standard & Poor s and Moody s provide investment services other than bond ratings. Have a small group of students research both companies and create an illustrated presentation to explain their findings. Ask them to explore the types of investor services each company provides and how these services help investors to make informed choices. GT To help students understand bond ratings and the opportunity cost involved in choosing one bond over another, instruct pairs of students to complete the following exercise. First, ask each pair to read through the part of the section titled onds as Financial Assets, starting on p Then, instruct one student to present a hypothetical bond to the other, including information about bond rating and interest rate. Ask the other student to respond verbally by describing the trade-off he or she would make by buying that bond. Then have students switch roles. (Example: One student presents a bond with a AAA Standard & Poor s rating with an interest rate of 4.5 percent. The other student responds by saying that the buyer is giving up a higher interest rate to gain a secure investment.) Transparency Resource Package Economics Concepts, 11C: ond Reports lock Scheduling Strategies Consider these suggestions to take advantage of extended class time: evote some class time to showing students how to read the business section of a newspaper. Provide small groups with copies of a national daily newspaper. Point out how the variety of information can help students invest wisely. Have students create their own how-to manual for reading these sections of the newspaper. Extend the first activity on this page by conducting an in-class tour of Web sites related to securities. Have students create a brochure pointing out what is offered at each site. Have students use the links provided in the Economics: Principles in Action segment in the Social Studies area at the following Web site: uilding Key Concepts AAA and Aaa 279

4 ackground Economics in History The Securities and Exchange Commission (SEC) came into being as part of the Securities Exchange Act of The purpose of the act was to reform and regulate certain financial practices, which many people blamed for the Great epression. The SEC s mission is to prevent fraud and deception in the purchase and sale of stocks and bonds. Stockbrokers and companies that trade in securities must register with the SEC. Furthermore, any individual who owns more than 10 percent of a company s stock is required to submit reports at regular intervals to the SEC. Another important aspect of the Securities and Exchange Act was to give the Federal Reserve authority to regulate margin requirements. Margin means the amount of money that an investor deposits with a broker. Stock bought on margin is financed largely with credit. uying on margin was a popular way to invest before the Great Crash in In fact, one reason the market collapsed was that so much of the stock in circulation had been bought with credit. The Securities and Exchange Act gave the Federal Reserve the right to require that anyone who bought securities on margin had to deposit a minimum amount of cash with a broker before the rest of the purchase price could be financed. Figure 11.5 Average ond Yields, Percent yield per year savings bond low-denomination bond issued by the United States government Term Maturity 1992 Liquidity and safety Minimum purchase enomination On the other hand, bonds also pose two main disadvantages to the issuer: 1. The company must make fixed interest payments, even in bad years when it does not make money. In addition, it cannot change its interest payments even when interest rates have gone down. Treasury ond long-term from 10 to 30 years safe 1995 Treasury Note intermediate-term from 2 to 10 years safe Year 1998 Source: Statistical Abstract of the United States, 1997 and Figure 11.6 Treasury onds, Notes, and ills PHSchool.com Web Code: mng-4112 Corporate bonds 30-year Treasury bond Municipal bonds From the early 1990s to the start of the 2000s, bond yields dipped slightly for all three types of bonds shown. Corporate bonds, however, continued to have the highest yield. Income Which of the three types of bonds would you expect to carry the least risk? Explain your answer. Treasury ill short-term 3, 6, or 12 months liquid and safe Treasury bonds, notes, and bills represent debt that the government must repay the investor. Government How do these three types of government securities differ? 2. If the firm does not maintain financial health, its bonds may be downgraded to a lower bond rating and thus may be harder to sell unless they are offered at a discount. Types of onds espite these risks to the issuer, when corporations or governments need to borrow funds for long periods, they often issue bonds. There are several different types of bonds. Savings onds You may already be familiar with savings bonds, which are sometimes given to young people as gifts. Savings bonds are lowdenomination ($50 to $10,000) bonds issued by the United States government. The government uses funds from the sale of savings bonds to help pay for public works projects like buildings, roads, and dams. Like other government bonds, savings bonds have virtually no risk of default, or failure to repay the loan. The federal government pays interest on savings bonds. However, unlike most other bond issuers, it does not send interest payments to bondholders on a regular schedule. Instead, the purchaser buys a savings bond for less than par value. For example, you can purchase a $50 savings bond for only $25. When the bond matures, you receive the $25 you paid for the bond plus $25 in interest. Treasury onds, ills, and Notes The United States Treasury epartment issues Treasury bonds, as well as Treasury bills and notes (T-bills and T-notes). These investments offer different lengths of maturity, as shown in Figure acked by the full faith and credit of the United States government, these securities are among the safest investments in terms of default risk. The federal government temporarily stopped selling 30-year bonds in 2001, upsetting many investors who like safe, long-term investments. Preparing for Standardized Tests uilding Key Concepts Students may say Treasury bonds because they are backed by the federal government. uilding Key Concepts They differ mainly in their maturity and in the term. Have students read the section titled Savings onds and then answer the question below. Which of the following is not a characteristic of savings bonds? A They are issued by the government. They can be used to help pay for public works projects. C They are sold in low denominations. They carry a high risk. 280

5 L2 Municipal onds State and local governments and municipalities (government units with corporate status) issue bonds to finance such improvements as highways, state buildings, libraries, parks, and schools. These bonds are called municipal bonds, or munis. ecause state and local governments have the power to tax, investors can assume that these governments will be able to keep up with interest payments and repay the principal at maturity. Standard & Poor s and Moody s therefore consider most municipal bonds to be safe investments, depending upon the financial health of a particular state or town. In addition, the interest paid on municipal bonds is not subject to income taxes at the federal level or in the issuing state. ecause they are relatively safe and are tax-exempt, munis are very attractive to investors. Corporate onds As you read in 8, corporations issue bonds to help raise money to expand their businesses. These corporate bonds are issued in fairly large denominations, such as, $5,000, and $10,000. The interest on corporate bonds is taxed as ordinary income. Unlike city and other governments, corporations have no tax base to help guarantee Municipal bonds, or munis, help finance local projects such as libraries and schools. their ability to repay their loans, so these bonds have moderate levels of risk. Investors in corporate bonds must depend on the success of the corporation s sales of goods and services to generate enough income to pay interest and principal. Corporations that issue bonds are watched closely not only by Standard & Poor s and Moody s, but also by the Securities and Exchange Commission (SEC). The SEC is an independent government agency that regulates financial markets and investment companies. It enforces laws prohibiting fraud and other dishonest investment practices. Junk onds Junk bonds, or high-yield securities, are lower-rated, and potentially higher-paying, bonds. They became especially popular investments during the 1980s and 1990s, municipal bond a bond issued by a state or local government or municipality to finance such improvements as highways, state buildings, libraries, parks, and schools corporate bond a bond that a corporation issues to raise money to expand its business Securities and Exchange Commission an independent agency of the government that regulates financial markets and investment companies junk bond a lowerrated, potentially higher-paying bond Have students use the following method to take notes on this section. First have them draw a vertical line down their paper, about one third of the way in from the left side. Have them paraphrase important points from the section in the right column. Then, in the left column, ask them to write questions that can be answered by their notes. Explain to them that they can use these notes for review by covering up the right column with a sheet of paper and answering the questions in the left column. LPR (Reteaching) Have students identify the types of bonds described in this section (savings, Treasury, corporate, junk) in a poster, table, chart, or other graphic presentation. isplay these projects on a bulletin board. Interdisciplinary Connections: Math Calculating Rate of Return Calculating interest rates and rates of return can be tedious work. Fortunately, some calculators have been designed specifically to handle interest rate calculations for both simple and compound interest over varying lengths of time. In addition, graphing calculators can be programmed to show data visually, enabling the user to enter data and track the progress of investments. Making the Connection Ask students who own graphing calculators to bring them in. You may also be able to borrow some from your school s mathematics department. Have a knowledgeable student demonstrate their use, or lead a class demonstration with investment data. 281

6 11 Section 2 Global Connections L4 You may wish to have students add the following to their portfolios. Ask them to write a brief essay comparing and contrasting certificates of deposit and money market mutual funds. Explain that their essays should describe the two types of financial assets and show how they are similar and different. International onds The United States government isn t the only government that issues bonds. Many other countries, including Saudi Arabia, Germany, and Japan, also issue bonds. International bonds are usually issued in large denominations, starting at $1 million. In addition, principal and coupon payments are often made in foreign currencies. The investors, therefore, cannot know what the value of payments will turn out to be. What are two drawbacks to buying international bonds? when large numbers of aggressive investors made but also sometimes lost large sums of money buying and selling these securities. Junk bonds have been known to pay over 12 percent interest at a time when government bonds are yielding only about 8 percent interest. On the other hand, junk bonds also carry bond ratings of lower medium grade or speculative (, a, or lower). Investors in junk bonds therefore face a strong possibility that some of the issuing firms will default on their debt. Economics Assessment Rubric Economics Assessment Rubrics folder, pp. 6 7 provides sample evaluation materials for a writing assignment. Ask groups of three to four students to design graphic organizers that use text and illustrations to show the differences and interrelationships among capital markets, money markets, primary markets, and secondary markets. Encourage students to go beyond the text to find additional information about these markets and incorporate that information into their graphic organizers. Nevertheless, in many cases junk bonds have enabled companies to undertake activities that would otherwise have been impossible to complete. (For more information on how to follow the progress of a stock by reading stock market reports, see page 284.) Other Types of Financial Assets In addition to bonds, investors may choose other financial assets. These include certificates of deposit and money market mutual funds, as well as stock. You will read more about stock in Section 3. Certificates of eposit Certificates of deposit (Cs) are one of the most common forms of investment. As you read in 10, Cs are available through banks, which lend out the funds deposited in Cs for a fixed amount of time, such as 6 months or a year. Cs are attractive to small investors because they cost as little as $100. Investors can also choose among many terms of maturity. This means that if an investor foresees a future expenditure, such as college tuition or a major home improvement, he or she can buy a C that matures just before the expenditure is due. Money Market Mutual Funds From what you have read, how accurate is the cartoonist s view of junk bonds? Global Connections Students may point out that investments would not be regulated by the U.S. government or that certain political events, such as wars, could affect an investment negatively. Cartoon Caption Students may say that junk bonds are not as worthless as the cartoonist suggests. 282 Money market mutual funds are special types of mutual funds. As you read in Section 1, businesses collect money from individual investors and then buy stocks, bonds, or other financial assets to form a mutual fund. In the case of money market mutual funds, intermediaries buy short-term financial assets. Investors receive higher interest on a money market mutual fund than they would receive from a savings account. On the other hand, money market mutual funds are not covered by FIC insurance. (As you read in 10, FIC insurance protects bank deposits up to $100,000 per account). This makes them slightly riskier than savings accounts. Preparing for Standardized Tests Have students read the section titled Certificates of eposit and then answer the question below. Why are certificates of deposit attractive to small investors? A C They cost as little as $100. They are insured by the Securities and Exchange Commission. They pay higher interest than money market mutual funds. They are highly rated by Standard & Poor s.

7 Financial Asset Markets Financial assets, including bonds, certificates of deposit, and money market mutual funds, are traded on financial asset markets. The various types of financial asset markets are classified in different ways. Capital and Money Markets One way to classify financial asset markets is according to the length of time for which funds are lent. This type of classification includes capital markets and money markets. Capital markets Markets in which money is lent for periods longer than a year are called capital markets. Financial assets that are traded in capital markets include long-term Cs and corporate and government bonds that require more than a year to mature. Money markets Markets in which money is lent for periods of less than a year are called money markets. Financial assets that are traded in money markets include short-term Cs, Treasury bills, and money market mutual funds. Section 2 Assessment Key Terms and Main Ideas 1. escribe two ways in which investors can earn money from bonds. 2. Why are bond ratings useful to investors? 3. escribe five different types of bonds. 4. How do capital markets and money markets differ? Applying Economic Concepts 5. Math Practice Suppose that you buy a bond for $100 that pays 4 percent interest per year. How much money will you have earned when the bond reaches maturity in five years? 6. ecision Making Suppose that you have saved. In which of the financial assets described in this section would you invest? Explain your choice. Progress Monitoring Online For additional assessment, have students access Progress Monitoring Online at Web Code: mna Typing in the Web Code when prompted will bring students directly to detailed instructions for this activity. Primary and Secondary Markets Markets may also be classified according to whether assets can be resold to other buyers. This type of classification includes primary and secondary markets. Primary markets Financial assets that can be redeemed only by the original holder are sold on primary markets. Examples include savings bonds, which are non-transferable (that is, the original buyer cannot sell them to another buyer). Small certificates of deposit are also in the primary market because investors would most likely cash them in early rather than try to sell them to someone else. Secondary markets Financial assets that can be resold are sold on secondary markets. This option for resale provides liquidity to investors. If there is a strong secondary market for an asset, the investor knows that the asset can be resold fairly quickly without a penalty, thus providing the investor with ready cash. The secondary market also makes possible the lively trade in stock that is the subject of the next section. capital market market in which money is lent for periods longer than a year money market market in which money is lent for periods of less than a year primary market market for selling financial assets that can only be redeemed by the original holder secondary market market for reselling financial assets Progress Monitoring Online For: Self-quiz with vocabulary practice Web Code: mna Critical Thinking Which bond would you expect to be more expensive, a bond with a AAA rating or a bond with a rating? (Assume that both bonds pay the same rate of interest.) 8. Try This Assume that you are an investment advisor with a client who is interested in buying bonds. Create a fact sheet that shows your client the different types of bonds and their characteristics. PHSchool.com For: Math Activity Visit: PHSchool.com Web Code: mnd $20 in interest 6. Answers will vary with students personal preference and familiarity with various investments. Students who prefer very safe investments may choose a certificate of deposit or a savings bond. Other students may choose money market funds for a higher return. 7. The AAA bond will generally be more expensive because of its lower risk. 8. Students should create a fact sheet showing accurate information about bonds and their characteristics. GTE Guide to the Essentials 11, Section 2, p. 47 provides support for students who need additional review of the section content. Spanish support is available in the Spanish edition of the guide on p. 47. Quiz Unit 4 folder, p. 16 includes questions to check students understanding of Section 2 content. Presentation Pro C-ROM Quiz provides multiple-choice questions to check students understanding of Section 2 content. Answers to... Section 2 Assessment 1. Investors earn money from interest on the bonds they buy. They can also earn money by buying bonds at a discount and cashing them in once they reach maturity. 2. ond ratings give investors an indication of the quality or degree of default risk that various bonds carry. 3. Savings bonds are low-denomination ($50 to $10,000) bonds issued by the U.S. government. They involve little risk. Treasury bonds are bonds issued by the Treasury epartment. They are safe investments, and their interest is exempt from state and local taxes. Municipal bonds are issued by state or local governments to help finance local improvements, are generally safe investments, and carry the added bonus that their interest is free from federal income tax. Corporate bonds are issued by corporations to raise large sums of money and involve moderate risk. Junk bonds are lower-rated, potentially higherpaying bonds issued by particular firms. 4. Capital markets include markets where money is lent for periods longer than one year (long-term Cs, corporate and government bonds). Money markets include markets where money is lent for periods of less than a year (shortterm Cs, Treasury bills, money market mutual funds). 283