Why Study Money, Banking, and Financial Markets?

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Why Study Money, Banking, and Financial Markets?

• Chapter 1
• By Madam Maira Zaib

www.IMSciences.net
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Why Study Money, Banking, andFinancial Markets

• To examine the role of money in
• the economy
• To examine how financial institutions
• such as banks and insurance
• companies work
• To examine how financial markets
• such as bond, stock and foreign
• exchange markets work

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Financial System Introduction

• Financial System is the group of individuals,
  intermediaries and institutions that can
  potentially interact or participate in
  transactions that involve real or financial
  assets.
• The financial assets are instruments that
  facilitate transactions in real assets or
  constitute the subject of a transaction between
  market participants.
• The financial markets facilitate the trading of
  financial assets between market participants and
• The financial intermediaries facilitate the
  financial transactions of market participants.

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Lending and borrowing relationships in a
financial system
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Financial system participants

• The Financial System provides the environment in
  which the individual investors and companies
  operate.
• Financial system participants
• Individuals.
• Companies.
• Financial institutions, private and public
  organizations.
• Governments.

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Financial Intermediaries

• Financial Intermediaries (FI) are companies that
  act as mediators between surplus and deficit
  economic agents.
• Financial Intermediaries
• Deposit takers.
• Banks
• Non-deposit takers
• Contractual Saving Institutions
• Investment Intermediaries

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Financial Markets

• Financial markets (FMs) are organized and highly
  regulated mechanisms that facilitate the
  transactions between investors and companies or
  other market participants that act as investors
  or intermediaries.
• Direct Indirect Markets
• Primary Secondary Markets
• Money Capital Markets

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Financial Markets

• Markets in which funds are transferred from
  people who have an excess of available funds to
  people who have a shortage of funds

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The Bond Market and Interest Rates

• A security (financial instrument) is a
• claim on the issuers future income
• or assets
• A bond is a debt security that promises
• to make payments periodically for a
• specified period of time
• An interest rate is the cost of borrowing
• or the price paid for the rental of fund

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The Stock Market

• Common stock represents a share of ownership in a
  corporation
• A share of stock is a claim on the earnings and
  assets of the corporation

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The Foreign Exchange Market

• The foreign exchange market is where
• funds are converted from one currency
• into another
• The foreign exchange rate is the
• price of one currency in terms of
• another currency
• The foreign exchange market
• determines the foreign exchange rate

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Banking and Financial Institutions

• Financial Intermediariesinstitutions that
  borrow funds from people who have saved and make
  loans to other people
• Banksinstitutions that accept deposits and
  make loans
• Other Financial Institutionsinsurance
  companies, finance companies, pension funds,
  mutual funds and investment banks
• Financial Innovationin particular, the advent
  of the information age and e-finance