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Source: https://www.boundless.com/economics/textbooks/boundless-economics-
textbook/introduction-to-macroeconomics-18/key-topics-in-macroeconomics-91/the-role-of-the-
financial-system-341-12438/
FINANCIAL FINANCIAL
INSTITUTIONS MARKET
The financial system comprises many different types of private-sector financial institutions
which are heavily regulated by the government . L
FINANCIAL INSTITUTIONS
INVESTMENT
BANKS
BANKS CENTRAL INSURANCE MUTUAL FINANCE
BANKS COMPANIES FUNDS COMPANIES
FINANCIAL MARKETS
PRIMARY SECONDARY
MARKETS MARKETS
EXCHANGES OVER-THE-
COUNTER
MARKETS
REFERRENCES:
https://www.linkedin.com/pulse/understanding-nuances-financial-markets-layman-
approach-rohan-anand
- Financial instruments are assets that can be traded. Most types of financial
instruments provide an efficient flow and transfer of capital all throughout the
world's investors. These assets can be cash, a contractual right to deliver or receive
cash or another type of financial instrument, or evidence of one's ownership of an
entity.
2. Classification (5)
+ Shares/ Equity (= claims on companies)
+ Debts (= claims on ultimate borrowers)
+ Deposits (= claims on banks)
+ Participation interests (PIs) (= claim on investment vehicles)
+ Derivatives:
Honestly, derivative instruments dont represent lending and borrowing (2 key
factors to define financial instruments), but they are still considered as instruments
of finance.
b. Debt instruments
- A debt instrument is a document that serves as a legally enforceable evidence of a
debt and the promise of its timely repayment (eg: Banker's acceptance, bills of
exchange, bonds, certificates of deposit, debentures, and promissory notes)
- The debt market is made up of:
+ The short-term debt market (STDM)
+ The long-term debt market (LTDM)
- The debt is loan from banks in various form:
+ Overdraft
+ Mortgage
+ Fixed term loans
+ Leasing contracts
+ Instalment credit contracts
c. Deposit instruments:
- The public (individuals, companies, organisations) and banks that hold properties
can deposit into central bank
- 2 types of deposit instruments are:
+ NCDs (negotiable certificates of deposit)
+ NNCDs (non-negotiable certificates of deposit)
e. Derivative instruments:
- Derivative instruments (or simply derivatives) are a category of financial
instruments that includes options, futures, forwards and swaps.
- The name of Derivatives arises from the fact that these instruments are derive
from debt and share instruments
- There are two groups of derivative contracts:
+ the privately traded over-the-counter (OTC) derivatives
+ exchange-traded derivatives (ETD)