The Domestic &
International
Financial Marketplace
CHAPTER 2
Financial System
It describes collectively the financial markets, the financial
system participants, and the financial instruments and securities
that are traded in the financial markets.
It is the vehicle that channels funds from saving units (savers) to
investing units (borrowers).
It provides intermediation between the suppliers and users of
credit.
It generates, circulates and control money and credit.
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Participants Or Sectors In The
1.
Financial System
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households or consumers
2. financial institutions/intermediaries
3. non-financial institutions
4. government
5. central bank
6. foreign participants4 household
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Components of the Financial
System
1. financial markets
2. financial intermediaries
3. regulators of financial activities
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Importance of Financial System
▸ Transfer of money can improve consumption
pattern and resource allocation.
▸ These will create more employment, income and
consumption.
▸ Creates positive effect in the economy.
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Different Forms of
Regulation
1. Disclosure regulation
2. Financial activity regulation
3. Regulation of financial institutions
4. Regulation of foreign participants
Categories of Financial
Institutions
▸ financial markets and
▸ financial intermediaries
Financial Markets
Financial markets are structures through which funds flow.
They are the institutions and systems that facilitate
transactions in all types of financial claim.
Financial markets are the meeting place for those with excess
funds and those who need funds.
Financial markets are at the heart of the financial system
determining the volume of credit available, attracting savings,
and setting interest rates and security prices.
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Classification of Financial Market
1) Primary
2) Secondary
3) Money
4) Capital
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Primary Markets
Are markets in which users of funds (e.g. corporations) raise funds, through
new issues of financial instruments such as stocks and bonds.
They consist of underwriters, issuers, and instruments involved in buying and
selling original or new issues of securities referred to as primary securities.
Most primary market transactions are done through investment banks, also
called merchant banks which help the corporations issuing the stocks or bonds
sell these stocks or bonds to interested investors.
Issues are generally for public offering or publicly traded securities like stocks
of companies already selling stocks in the stock market or stock exchange.
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Secondary Markets
Are markets for currently outstanding securities, referred to as
secondary securities.
It provide liquidity for investors as they sell their financial
securities when they need cash.
It exist for the purpose of marketability or easy selling/ transfer
of ownership and liquidity or easy convertibility to cash of
securities.
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Money Markets
It cover markets for short-term debt instruments, usually
issued by companies with high credit standing.
It is the sector of the financial market that includes financial
instruments that have a maturity or redemption date that is one
year or less at the time of issuance.
They consist of institutions and facilities for trading and debt
securities with a maturity of one year of less (Saldana 1997).
This is a slide title
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Capital Markets
Are markets for long-term securities. Long term securities are either
debt securities ( notes, bonds, mortgages, or leases ) or equity
securities ( stocks ).
It is where long-term funds are raised through the bond market, which
deals with long-term debt securities such as bonds, the stock market
which deal with equity securities or stocks.
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Main Types of Financial
Instruments
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Financial Intermediaries
▸ are financial institutions through which savers can directly or
indirectly provide funds to borrowers.
▸ It can be depository (banks) and non-depository financial
institutions
▸ Insurance companies, finance companies, mutual funds,
pension funds and pawnshops.
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