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  • An Overview of The Financial System: © 2005 Pearson Education Canada Inc

    Transféré par

    Carolina Granger Marin
    24 vues12 pages
    The document provides an overview of the financial system including the functions of financial markets and intermediaries. Financial markets allow funds to be transferred from those without investment opportunities to those with opportunities, improving economic efficiency. Markets are classified as debt or equity and operate at primary or secondary levels on exchanges or over-the-counter. Internationalization has increased with foreign bonds and Eurobonds now larger than some domestic markets. Financial intermediaries engage in indirect finance, providing a more important source of funds than markets by reducing transaction costs and information problems. Regulation aims to increase information to investors and ensure the soundness of intermediaries.

    Description originale:

    Chapter 2 Slides

    Titre original

    Money & Banking

    Copyright

    © © All Rights Reserved

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    The document provides an overview of the financial system including the functions of financial markets and intermediaries. Financial markets allow funds to be transferred from those without investment opportunities to those with opportunities, improving economic efficiency. Markets are classified as debt or equity and operate at primary or secondary levels on exchanges or over-the-counter. Internationalization has increased with foreign bonds and Eurobonds now larger than some domestic markets. Financial intermediaries engage in indirect finance, providing a more important source of funds than markets by reducing transaction costs and information problems. Regulation aims to increase information to investors and ensure the soundness of intermediaries.

    Droits d'auteur :

    © All Rights Reserved
    Téléchargez comme PPT, PDF, TXT ou lisez en ligne sur Scribd
    Signaler comme contenu inapproprié
    24 vues12 pages

    An Overview of The Financial System: © 2005 Pearson Education Canada Inc

    Transféré par

    Carolina Granger Marin
    The document provides an overview of the financial system including the functions of financial markets and intermediaries. Financial markets allow funds to be transferred from those without investment opportunities to those with opportunities, improving economic efficiency. Markets are classified as debt or equity and operate at primary or secondary levels on exchanges or over-the-counter. Internationalization has increased with foreign bonds and Eurobonds now larger than some domestic markets. Financial intermediaries engage in indirect finance, providing a more important source of funds than markets by reducing transaction costs and information problems. Regulation aims to increase information to investors and ensure the soundness of intermediaries.

    Droits d'auteur :

    © All Rights Reserved
    Téléchargez comme PPT, PDF, TXT ou lisez en ligne sur Scribd
    Signaler comme contenu inapproprié
    sur 12

    Chapter 2

    AnOverview
    oftheFinancial
    System

    2005 Pearson Education Canada Inc.

    Function of Financial Markets


    1.Allowstransfersoffundsfrom
    personorbusinesswithout
    investmentopportunitiestoone
    whohasthem
    2.Improveseconomicefficiency

    2005 Pearson Education Canada Inc.

    2-2

    Classifications of Financial Markets


    1. DebtMarkets
    Shortterm(maturity<1year)MoneyMarket
    Longterm(maturity>1year)CapitalMarket
    2. EquityMarkets
    Commonstocks
    1. PrimaryMarket
    Newsecurityissuessoldtoinitialbuyers
    2. SecondaryMarket
    Securitiespreviouslyissuedareboughtandsold
    1. Exchanges
    Tradesconductedincentrallocations(e.g.,TorontoStockExchangeandNewYorkStock
    Exchange)
    2. OvertheCounterMarkets
    Dealersatdifferentlocationsbuyandsell

    2005 Pearson Education Canada Inc.

    2-3

    Internationalization of Financial Markets


    InternationalBondMarket
    1.Foreignbonds
    2.Eurobonds
    NowlargerthanU.S.corporatebondmarket
    WorldStockMarkets
    U.S.stockmarketsarenolongeralwaysthe
    largest:Japansometimeslarger

    2005 Pearson Education Canada Inc.

    2-4

    Function of Financial Intermediaries


    FinancialIntermediaries
    1. Engageinprocessofindirectfinance
    2. Moreimportantsourceoffinancethansecuritiesmarkets
    3. Neededbecauseoftransactionscostsandasymmetric
    information
    TransactionsCosts
    1. Financialintermediariesmakeprofitsbyreducing
    transactionscosts
    2. Reducetransactionscostsbydevelopingexpertiseandtaking
    advantageofeconomiesofscale

    2005 Pearson Education Canada Inc.

    2-5

    Function of Financial Intermediaries


    RiskSharing
    1. Createandsellassetswithlowriskcharacteristics
    andthenusethefundstobuyassetswithmore
    risk(alsocalledassettransformation).
    2. Alsolowerriskbyhelpingpeopletodiversify
    portfolios

    2005 Pearson Education Canada Inc.

    2-6

    Asymmetric Information:
    Adverse Selection,and Moral Hazard
    AdverseSelection
    1. Beforetransactionoccurs
    2. Potentialborrowersmostlikelytoproduceadverseoutcomesare
    onesmostlikelytoseekloansandbeselected
    MoralHazard
    1. Aftertransactionoccurs
    2. Hazardthatborrowerhasincentivestoengageinundesirable
    (immoral)activitiesmakingitmorelikelythatwontpayloanback
    Financialintermediariesreduceadverseselectionandmoral
    hazardproblems,enablingthemtomakeprofits

    2005 Pearson Education Canada Inc.

    2-7

    Financial Intermediaries

    2005 Pearson Education Canada Inc.

    2-8

    Size of Financial Intermediaries

    2005 Pearson Education Canada Inc.

    2-9

    Regulatory Agencies

    2005 Pearson Education Canada Inc.

    2-10

    Regulatory Agencies

    2005 Pearson Education Canada Inc.

    2-11

    Regulation of Financial Markets


    TwoMainReasonsforRegulation
    1. Increaseinformationtoinvestors
    A. Decreasesadverseselectionandmoralhazardproblems
    B. Securitiescommissionsforcecorporationstodisclose
    information

    2. Ensuringthesoundnessoffinancialintermediaries
    A. Preventsfinancialpanics
    B. Chartering,reportingrequirements,restrictionsonassets
    andactivities,depositinsurance,andanticompetitive
    measures

    2005 Pearson Education Canada Inc.

    2-12

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