IFS

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1. Int er nat i o nal F i nan c ial Sy s te m By: Sher Bahader Khan (Mashriqi)

2. Outlines Introduction. Breaking down Financial System. Global Financial System. Dif f ere n c e b et we e n I M S & I F S. C o m p o n e n ts o f F i n anc i a l S yst e m . B a nk i n g and F in a n c i al Inst i tut i on s . F i na n c ial Inst r u m ent s. F i na n c ial M a r k e ts. T y p e s o f F in a nc i al M a r ke t s. Others Terms Related to IFS

3. Introduction A financial system is the system that covers financial transactions and the exchange of money between investors, lender and borrowers   .

4. BREAKING DOWN 'Financial System' A f inan c i a l s y s t e m c an be op e ra t e o n a g lo b a l , re g i o na l o r f ir m s p ec i f i c l eve l . T h e f ir m ' s f i n a n c i a l s y s t e m i s t h e s et o f i m p l e m e n t e d p r o ce d u re s t h a t t r ack t h e f i n a n c ial act i v i t i es o f t h e c o m pan y. O n a re g i o na l s ca l e, t h e f i n a n c i a l s y s t e m i s t h e s y s t em t h a t e nabl e s l e n de r s an d b o r r o w e r s t o e x c h a n ge fu n d s . T h e g l o b a l f inan c ia l s y st em i s b a s i c a l l y a broa d e r re g iona l s y st em t h a t e n c o m p as s e s al l f inan c i a l in st i tut ion s, borro w e r s an d l e n d e rs w i t h i n t h e g loba l ec on o m y .

5. G l o ba l f i n a n c i al sys t e m ( GFS ) T h e g l o ba l f i n a n c i al sys t e m ( GFS ) i s t h e f inan c ia l s y s t e m c on s i s t in g o f in s t i tut ion s an d re gu l a t or s t h a t act o n t h e in t e rn at i o n a l l ev e l , a s o ppo s e d t o t ho s e t h a t a c t o n a n a t io n a l o r re g i o na l l e ve l . T h e m a i n pl aye rs a r e t h e g l o b a l i n s t i t u t i o n s , s u c h as I n t e rn a t io n a l M o n e t a r y F u n d an d B an k f o r I n t e rn a t io n a l S et t l eme n t s, n at i o n a l a g e n c i es an d g o ve rn m e n t d e pa r tme n t s, e. g. , c e n t ra l ban k s an d f i n a n ce m in i s tr i e s , p r i v ate i n s t i t u t i o n s act in g o n t h e g lo b a l s c al e , e . g. , b a n k s an d h e d ge f u n d s , an d re g iona l in s t i tut ion s, e. g. , t h e E u r o zon e .

6. Dif f ere n c e b et we e n I M S & I F S I t c o ns t i t ut es a n i n t e g r ate d s e t o f m o n ey fl o w s a nd r el a t e d g ov e r n an c e i ns t i t ut io n s th a t e st a bli s h th e qu a nti t i e s o f m on ey, th e m e an s f o r su p po r t ing c u r r e n cy r e q u i r e m e nt s and th e bas is f o r e x c hang e am o n g c u r r e n cies in o r d e r t o m ee t p a y m e n ts o bl i ga t i on s w i t h i n a n d a c r o s s c ou nt r i e s . I t c o ns ti tut es t h e fu l l r ang e o f i nt e r e s t ‐ an d r e t u r n ‐ b e a r i n g ass e ts , ban k and n o nban k f ina nci al i ns t i t ut io n s , f ina nci al m ar k e ts t ha t t ra d e and d e t e r m ine t h e pr i c es of th e s e ass et s , an d th e n o nma r k et a c ti v i t ies t h r o u g h w hi c h the e x c ha n g e o f fi nan c ial ass e ts c a n t a ke pla ce. I n t e rn a t i o n al M o n eta r y S ys t e m I n t e rn a t i o n al F in a nc i a l S yst em

7. Cont… C e n t r a l ba n k s , i n te r n a t i ona l f in an c i a l i n s t i tut io ns, c o m m e rc i a l ba n k s a nd v a ri o u s t y p e s of m o n e y m a r k e t fun ds a lo n g w i t h o p e n m a r k e t s fo r c u r r e n c y a n d, de p e n d i n g o n in s t i t ut i o n a l s t r u c t u re , g o ve r n m e nt b o n ds a r e a ll p a r t of t he i n t e r na t i o n a l m o n e t a r y s y s t e m . P r i v a t e eq ui t y t r ansa ct i o n s , p ri v a t e e q u i ty / h edge fun d j o in t ve n tu re s , l ev e r age b uy o u t s w h et h e r b a n k f i n a n c e d or n o t , et c . a r e t he b e s t e x a m p l e s fo r i n t e r na t i o n a l f in an c i a l s y s te m . I n t e rn a t i o n al M o n eta r y S ys t e m I n t e rn a t i o n al F in a nc i a l S yst em

8. Cont… M o n e y i s u s e d as a u nit of a c c o u n t a nd/ o r a m e d i um of e x c h a n ge t o s u p po r t a n d f o s t e r t he e xc h a n ge of g o o ds a n d s e r v i c e s , a nd c a p i t a l f lo w s, w i t hin a nd a c r o s s c o u n t r i e s . I n I M S m on e y ( in c o n t r ast t o f i nan c i a l as s e t s) is n ot i n te re s t b e a ri n g. But u n de r IF S it is a i n t e r e st b e a ri n g. Th e IF S li e s at t h e h e a r t o f t he g l ob al c r e d i t c re a t i o n an d all o c a t ion p r o c e s s . I n t e rn a t i o n al M o n eta r y S ys t e m I n t e rn a t i o n al F in a nc i a l S yst em

9. Cont… M o n e y is u s e d as a u n it o f a c c o u nt an d / o r a me dium o f e x c h a n ge t o s u p p o r t a nd fos t e r t he e xc ha n ge o f g oo d s a nd s e r v i c e s, an d c ap i t a l f l o w s, w i t h i n an d a c r oss c o u n t ri e s; t o c a l i b r a t e v alu e s a nd a d v a n c e t he e x c h a n ge of f in an c i a l a s s e t s; a n d t o f o s te r t he d e ve l o p m e nt of f i na n c i a l m a r k e t s. t h e IF S de p e n ds o n t h e e ff e c t ive f u n c t i o ni n g a n d p r u de nt m a na g eme n t o f t h e IMS an d t he re a dy a v a il a b ili t y of c u r r e n c i e s t o s u p p o r t t he pa yme n t s y s t e m . T h e IF S e n c o m p a s s e s t he IMS but e xt e n ds in fun c t ion a n d c o m p l e xi t y w e ll b ey on d t h e IMS. I n t e rn a t i o n al M o n eta r y S ys t e m I n t e rn a t i o n al F in a nc i a l S yst em

10. Cont… I M S ev e n t s a r e o f t e n a b out t he a v a il a b ili t y of liquidi t y . I M S ev e n t s c a n b e r e solv e d p rim a r ily t h r o u g h c e n t r al ba n k a c t i o n a nd c o m m o n a g re e m e n t . I F S c r is e s a r e m o r e c o m pl e x an d f ar re a c h in g. T h e y c an i n v o l v e r e gu l a t o r y a nd re p o r t i n g c h an ge s ; t h e y h a ve s ig n ifi c ant an d e n du ri n g e c o n o m ic e ff ec t s. I n t e rn a t i o n al M o n eta r y S ys t e m I n t e rn a t i o n al F in a nc i a l S yst em

11. C o m p o n e n ts o f F i n anc i a l S yst e m . M o n ey . B an k i n g an d F i n a n c i a l I n s t i tut ion s. F inan c ia l I n s t r u m e n t s . F inan c ia l M a r k et s. C e n tr a l B a n k s.

12. B a nk i n g and F in a n c i al Inst i tut i on s :- F inan c ia l I n te r me d ia r i e s a r e i n s t i tut i on s t h a t c hann e l f u n d s f r o m in d i v i d u a l s w i t h su rpl us fu n ds t o t ho s e d e s i r i n g f u n d s b ut hav e s hor t age o f i t . A m o n g o t h e r s e rvi ce s, t h e y al l o w in d i v i d u al s t o e a r n a d ece n t r et u r n o n t h e i r m o n e y w hi l e a t t h e s a m e t i m e avoi d in g ri s k ; e . g. , ban k s , in su ran c e c o m p a n i e s , f i nan c e c o m pani e s, in ve st me n t ban k s , mutu a l fu n d s , bro ke ra g e ho u s e s ,

13. Cont… B an k s ar e f i n a n c i a l in st i t u t io n s t h a t ac ce p t d e p o s i ts a n d m a k e l o a n s. B an k s m ak e t h e m o n e t ar y s y s t e m a lo t m o r e eff i c i e n t b y re d uc i n g o u r n ee d t o c a r r y a lo t o f ca s h . I nno va t ion s i n b a n k in g li k e de b i t c ard s , di r e c t de po s i t , an d a ut o m at i c b i ll - p a y i n g re d uc e t h at in c o n ve ni e n c e e ve n fu rt h e r , a n d a l s o re d uce su c h ban k - re l a t e d in c on ve n i e n c es o f t i me s p e n t s t a n d i n g i n lin e a t t h e ban k , w ri t in g c h e c k s , o r v i s i t in g t h e A T M.

14. F i na n c ial Inst r u m ent s : - “ S e cu ri t i e s ” i s a na m e t h a t c o mm o nl y r e fe r s t o f inan c i a l in st r u m e n ts t h a t ar e t rad ed o n f inan c ial m a rk et s. A s ecu ri ty ( f i n a n c ia l i n s tru m e n t) i s a f or m al obl i ga t io n t h a t e n t i t l e s o n e part y t o re c e i v e p ay m e n ts a n d / o r a s har e o f a ss ets f ro m a n o t h e r pa rt y ; e .g. , lo a n s , s t o ck s, bon d s. Ev e n a n or d ina r y ban k l o a n i s a f inan c i a l in st r u me n t.

15. F i na n c ial M a r k e ts :- F inan c ia l m a rk e ts a r e m ec h a n i s ms t h a t al l o w s p e o p l e t o ea s il y b uy a n d s e ll ( t ra d e ) f inan c i a l s e cu ri t i e s (su c h as s t o ck s an d b o n d s ), c o m m o d i t i es (su c h as pr e c io us m e t al s o r a g r i cu l tu r a l g oo d s) , an d o t h e r f u n g ib l e i t ems o f v al ue a t lo w t r a n s ac t i o n c o sts an d a t pri ce s t h a t re f l ec t; e .g . , B ahr a in S t o c k Exchan g e , N e w Yor k S t o c k E x c h a n ge, U . S . T r e a s u ry ' s on l in e a uct io n s i te f o r i ts bon d s.

16. Cont… F inan c ia l m a rk e ts s uc h a s s t o c k m a rk e t an d b o n d m a r k et a r e e s s e n t i a l t o pr o m o te g re ate r ec o n o m i c eff i c i e n cy b y c hann e lin g fu n d s f ro m w h o d o n o t hav e pro d u c t i v e use o f f u n d (sa v e r s) t o t ho s e w h o d o ( in ve st o r s) . Whi l e w e l l - f u n c t ionin g f inan c i a l m a r k ets pro m o te g ro w t h , p o orl y p e rfor m in g f i n a n c i a l m ar k ets c an b e t h e cau s e o f po v e rt y . T h u s , ac t i v i t i e s i n f i n a n c i a l m ar k ets m a y i n c re a s e act i v i t i es i n f i n a n c ia l m ark e ts af f e c t b us in e ss cyc l e .

17. A f i nan c i a l ma r ke t is a m ar k e t i n w hi c h f i n an c i al ass e ts (s e c u r it ie s ) c a n b e pu r c has e d o r s o l d F in a n ci a l m a r k e ts fa ci li ta te f i n an c ing an d i n v e st ing by ho u s e h olds , f i r ms , an d g o v e rnm e n t ag e n cies P a r t i c ipa n ts t ha t p r o v ide fu nd s ar e c al le d s u r p l u s un its e .g ., ho us e h olds P a r t i c ipa n ts t ha t e nte r m ar k e ts t o o bt ai n fu n d s ar e d ef i ci t u n i ts e .g ., t h e g o v e r n m e n t Cont…

18. T y p e s o f F in a nc i al M a r ke t s : - M o n e y a n d C a p i t a l M a r k et . P ri m a r y an d S ec o n dary M a r ke t. D e b t Mark e t .

19. T h e B o n d M a r ke t a n d Int eres t R a t e s T h e S t o c k M a r ke t T h e F o reig n Ex c h a n g e M a r ke t E ur o B o n d M a r ke t For w a r d M a r k e t s Fo r w a r d F o re i g n E xc h an g e Co n tr a c t Futur es M a r k e t Others Terms Related to IFS