Untitled2_21 - Chapter 2 Introduction to financial systems...

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• enable wealth holders to adjust the composition of their portfolios • provide payment mechanisms. Activity 2.1 Throughout this guide, there are a lot of key terms, all collected in the ‘Key terms’ section at the end of each chapter. Compile your own glossary with full definitions and comments on each of these terms, and use it for revision. Figure 2.1: Functions performed by a financial system The structure of financial systems: financial markets, securities and financial intermediaries From a structural point of view a financial system can be seen in terms of the entities that compose the system. A financial system comprises financial markets, securities and financial intermediaries. Financial markets are markets in which funds are moved from people who have an excess of available funds (and lack of investment opportunities) to people who have investment opportunities (and lack of funds). They also have direct effects on personal wealth, and the behaviours of businesses and consumers. Therefore, they contribute to
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