(BBA)CH2 Financial System

(BBA)CH2 Financial System - Chapter Two An Overview of the...

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Unformatted text preview: Chapter Two An Overview of the Financial System Flows of Funds Through Financial System (p.26) Borrower / Spenders 1.Firms 2.Government 3.Households 4.Foreigners Direct Finance Financial Markets Financial Intermediaries Indirect Finance Lender / Savers 1.Firms 2.Government 3.Households 4.Foreigners Function of Financial Markets (p.25-27) 1. Channeling funds from those whose have surplus to those whose have a shortage of funds. 2. Producing an efficient capital allocation, which contributes to higher production and efficiency for the overall economy. 3. Improving well-being of consumers by allowing Structure of Financial Markets (p.27-29) Source: Chu, S.H. (2009) Debt Market Equity Market Primary Market Money Market Exchange Market Secondary Market Over-the-Counter Market Capital Market Financial Markets Functions of the Secondary Markets (p.29) The Secondary Markets have two functions: 1. Make it easier and quicker to sell financial instruments to raise funds. (Liquidity) 2. Determine the price of the security that issuing firm sells in the primary market. (Market maker) Financial Market Instruments (p.30) 1. Money market instrument 2. Capital market instrument Money Market & Instruments (p.30) (short-term loan) Money Market Federal Funds Treasury-Bills Repurchase Agreements Commercial Paper NCD Money Market & Instruments (p.30) Sample: Negotiable Certificates of Deposit (NCD) Bank of Communication Negotiable Certificates of Deposit No: XXX Tenor : 6 months (September 6, 2010 to March 5, 2011). Interest rate: 1.50% per annum. (Floating or Fixed) Amount: Say MOP$ Macau Branch, Bank of Communication Wailong Avinada, -------------------------- Taipa, Macau Authorized Signature Sample: Commercial Paper (C/P) Source: Chu (2009) Commercial Paper CP No.: XXX Drawing date: September 6, 2010 To unconditionally pay in order of on due day of March 5, 2011 Amount: Say MOP$___________________________________________ Location of Payment Macau Branch, Bank of China Drawee: A Company Guarantor: Bank of China _________________ ________________ Authorized Signature Authorized Signature Flowchart of Issuing C/P (Taiwan Experience) OK (Guarantee) 1.Apply for Guarantee OK (Visa & Underwriting bills) 2.Apply for Visa & Underwriting2....
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This note was uploaded on 11/07/2010 for the course BBA 4565 taught by Professor Chushunhe during the Spring '10 term at University of Macau.

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(BBA)CH2 Financial System - Chapter Two An Overview of the...

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