Chapter 1 - Chapter One Role of the Financial System I....

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Chapter One Role of the Financial System I. Role of the Financial System 1. Purpose of financial system is to facilitate the movement of money from whoever has the excess at the moment to whoever needs more than they currently have, so it can be spent. 2. Financial System = Financial Market + Financial institutions 3. Because of the high price volatility of some financial markets, such as the stock market, financial markets tend to be very news worthy. 4. Financial institutions are such firms as commercial banks, credit unions, life insurance companies, and finance companies, and are often called financial intermediaries . 5. The idea of financial institutions is to attract money at a low rate and lend at a higher rate to earn interest rate spread . 6. Financial institutions are a far more important source of financing than securities markets. 7. Economic Units: Households , Business firms , and Governments . 8. Budget Positions: Balance, surplus, and deficit . 9. The financial system is concerned with funneling money from surplus spending units (SSUs) to deficit spending units (DSUs) . 10.
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Chapter 1 - Chapter One Role of the Financial System I....

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