©2012 McGraw-Hill Ryerson Limited 1 of 33 Learning Objectives 1.Define primary, secondary, money and capital markets. (LO1) 2.Outline the primary participants raising funds in the capital markets. (LO2) 3.Characterize the Canadian economy as three major sectors allocating funds amongst themselves. (LO3)

©2012 McGraw-Hill Ryerson Limited 2 of 33 The Supply of Capital Funds The major supplier of funds for investment in a three-sector economy is the household sector. The transfer of funds from savers to borrowers can be accomplished directly in the capital markets. Alternatively, a saver can indirectly invest his or her funds through a financial intermediary. These financial intermediaries help make the flow of funds very efficient and competitive. LO3

©2012 McGraw-Hill Ryerson Limited 3 of 33 Figure 14-9 Flow of funds through the economy LO3

©2012 McGraw-Hill Ryerson Limited 4 of 33 Figure Total assets of financial intermediaries LO3 Source: Bank of Canada, Banking and Financial Statistics, 2011, C3, D1-D5 Series; Statistics Canada, CANSIM to 0004.