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FINS1612 Summary
FINS2618 - Capital Markets and Institutions
20 Pages • Complete Study Notes • Year: Pre-2021 • Previously uploaded under: FINS1612 - Capital Markets and Institutions
FINS1612 WEEK 1 Financial System Money: Acts as medium of exchange; represents a store of wealth; facilitates saving and solves the divisibility problem. Financial system: comprises a range of financial institutions, financial instruments and financial markets which interact to facilitate the flow of funds. Surplus units: savers or providers of funds, funds are available for lending or investment. Deficit units: borrowers or users of funds. Main functions of financial system (facilitate the flow of funds): • Facilitate the transfer of funds from surplus to deficit economic units in primary financial markets, by the creation of new financial assets. • Provide arrangement for trade in existing financial assets in secondary financial markets. • Provide investment products for surplus economic units (shares, bank deposits); alternative funding sources for deficit economic units (bank loans); risk management products and services (insurance products). • Provide economic and financial information (timely and accurate) to the markets; An efficient financial system rapidly absorbs and reflects new information into the price of financial instruments. • Efficient financial system should ensure that savings will be directed to the most efficient users of those funds (govt’s role). • Overseeing the financial system is the central bank and the prudential supervisor.
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