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1 Found helpful • 12 Pages • Topic Notes • Year: Pre-2021 • Previously uploaded under: FINS1612 - Capital Markets and Institutions
Functions of a financial system - Money o Medium of exchange o Allows specialisation in production o Solves divisibility problem, i.e. where medium of exchange does not represent equal value for the parties to the transaction o Facilitates saving o Represents a store of wealth - Role of markets o Facilitate exchange of goods and services by: Bringing opposite parties together Establishing rates of exchange, i.e. parties - Surplus units: Savers of funds available for lending - Deficit units: Borrowers of funds for capital investment and consumption - Financial instrument: Issued by a party raising funds, acknowledging a financial commitment and entitling the holder to specified future cash flows - Double coincidence of wants satisfied: Transaction between two parties that meets their mutual needs - Flow of funds: Movement of funds through the financial system between savers and borrowers fiving rise to financial instruments - Financial system: Comprises financial in
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