FINANCIAL SYSTEM REPORTS in College.pptx

Financial system

1. FINANCIAL SYSTEM Reporter:

2. DEFINITION OF TERMS: MONEY – Coin, pieces of stamped metal used as a trading medium, any currency used in the same way. Cash – Money on hand. Capital market – the market for longer-term loanable funds. Debentures – an instrument issued as evidence of a borrower’s debt to a lender. These are used by companies to raise finance repaid over the long term.

3. What is Financial System? It is an organized and regulated structure where an exchange of funds takes place between the lender and the borrower. It supplies the necessary financial inputs for the production of goods and services, in turn, promotes the well-being and standard of living of people in the country.

4. Lenders and borrowers are the two main players in Financial System. Lenders are those who believe that money that they have now has the potential of snowballing in the future; hence they lend it to the financial institution like a bank. Borrowers can be a household that needs to buy a house or a car but does not have enough money on hand to acquire it.

5. FINANCIAL INSTITUTIONS Financial asset is someone else’s liability. For example, money is a liability of the central bank. Stocks, Bonds, Currencies are considered financial assets. Real asset is something with intrinsic value. Example valuable pieces of jewelry, machines or other physical assets that may be traded in a hard market. Real – estate and commodity are considered real assets.

6. However, commodities like gold and silver may be considered either financial assets or real assets, depending on the behavior in the market (as it changes according to inflation and how it is traded)

7. SHORT & LONG TERM INSTRUMENTS Short-term instruments mostly securities that mature in less than one year are traded in the money market. Long-term instruments are those mature more than a year are traded in the capital market.

8. Financial derivatives are forms of financial instrument, a value of which is derived from another instrument. A good example of which is a stock option, wherein the stock is the base and the option would be its derivative. It is a tradable financial instrument based on an asset’s underlying value.

9. INVESTMENT MANAGEMENT Involves channeling of funds by means of financial intermediaries, transferring and scheduling of risks, appropriation of the investment class, and managing ownership of funds. A competitive market may be characterized by these three factors, how risk and return are optimized, how efficient is the investment market, and how appropriate is the style of investment, whether active, passive, or a combination

10. Key Players in Financial system FIRM GOVERNMENT HOUSEHOLD FINANCIAL INTERMEDIARIES

11. In the economy, assets are plotted by these players: the business issuing securities (debt and equity) or financial instruments, the FIRM; the ones who lend and borrow from FINANCIAL INTERMEDIARIES, The HOUSEHOLD ; The one that never overfunds and is considered always in a shortage, the GOVERNEMT; and the one positions between the debtors and the creditors, the FINANCIAL INTERMEDIARIES. There are a lot of examples of financial intermediaries, such as banks , mutual funds , pension funds , and insurance companies.

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