OVERVIEW OF FINANCIAL SYSTEM

•FINANCIAL MARKETS AND INSTITUTIONS• ROLES OF BANK AS FINANCIAL

INTERMEDIARIES

A market which people and entities can trade financial securities. Comodities and other fungible item of value at low transactions costs and price that reflect DD and SS

In finance, financial markets facilitate:•The raising of capital (in the capital markets)• The transfer of risk (in the derivatives markets)•Price discovery•Global transactions with integration of financial markets•The transfer of liquidity (in the money markets)•International trade (in the currency markets)

•->Used to match those who want capital to those who have it

Definition• Markets• aggregate of possible

buyers and sellers if a certain good or service and the transaction between them

• Sometimes used for exchanges,organizations that facilitate the trade in financial securities

Types • Financial market always use to

refer just ti the markets that are used to raised finance• Long term->capital market• Short term->money market

• Another common use=• catchall for all the markets in

the financial sector• Capital market

• Stock markets• Bond markets

• Comodity markets• Money market• Derivatives markets• Futures markets• Insurance market• Forex markets

FINANCIAL MARKETS

An institutions that provides financial services for its clients or members=>most important financial service provided by financial institutions Is acting as financial intermediaries

Three major types of financial institutions•->depositary institutions•->contractual institutions•->investment institutes

Function• Provide service as intermediaries of

financial markets• Responsible for funds from investors to

companies in need of those funds• Facilitate the flow of money through

economy

FINANCIAL INSTITUTIONS

=>Consists of channeling funds between surplus and deficits agents=>a financial institutions that connects surplus and deficit agents=>i.e. bank that consolidates bank deposits and uses the fund to transform them into bank loans

Functions• Maturity transformation

• Converting short term liabilities to long term assets• Risk transformation

• Converting risky investment into relatively risk-free ones

• Convenience denomination• Matching small deposits with large loans • Matching large deposits with small loans

Types• Banks• Building societies• Credit unions• Financial advisers or brokers• Insurance companies• Collective investment scheme• Pensions fund

FINANCIAL INTERMEDIARIES

Issue of money, in the form of banknotes and

current accounts subject to check or payment at the customer's order

Credit intermediation

Credit quality improvement

Money creation

Asset liability mismatch/Maturity

transformation

Netting and settlement of payments

ROLE OF BANKS AS FINANCIAL INTERMEDIARIES