Lecture_3-1._Overview_of_the_Financial_System

Lecture_3-1._Overview_of_the_Financial_System - 1 LECTURE 3...

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LECTURE 3 Overview of the Financial System Osvaldo Lagares, M.S. 1
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Introduction: Financial System ± The Financial System moves funds from capital providers (savers) to capital users (borrowers). ± Key aspects of it are: 1. Financial Markets : Provide direct finance via: ± Stocks ± Bonds ± Foreign Exchange 3
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Introduction: Financial System 2. Financial Institutions: Provide indirect (i.e., intermediated) finance ± Banks. ± Other Intermediaries. 3. Financial Instruments: ± Money. ± Bonds. ± Stocks. 4
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Introduction: Financial System 4. Financial Services: ± Transform Risk ± Transform Liquidity ± Produce and Transmit Information 5
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Topics in Financial Decisions ± Financial system and economy connections ± Financial markets ± Financial institutions ± Money ± Economic approach 6
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Financial System and the Economy ± Financial system Ł A network of markets and institutions to bring savers and borrowers together ± Savers and borrowers Ł 3 groups of potential savers and borrowers are households, businesses, and governments ± Financial instruments Ł 8
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Financial Services provided by the financial system ± Risk sharing Ł exposed ± Liquidity Ł A measure of how readily one asset can be converted to cash ± Information Ł The financial system gathers information about ERUURZHUV¶ circumstances so individual savers do not need to search for prospective borrowers 9
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Financial System 1. Financial Markets ± Transfers funds from savers to borrowers ± borrowing across national boundaries) is growing rapidly ± Asset prices communicate information 10
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Financial System 2. Financial Institutions ± Intermediaries between borrowers and savers ± Deposit insurance crisis (1980 ¶V and early 1990 ¶V² and recent reforms ± Loans from financial institutions account for the majority of funds borrowers raise (rather than the stock and bonds markets) 11
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Sources of Funds for Nonfinancial Businesses: Markets Versus Institutions 12
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Back to the Basics: Purpose of the Financial System ± Purpose of the Financial System : The economic goal is to match: 1. Borrowers: Agents who wish to issue liabilities
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This note was uploaded on 08/10/2011 for the course ECON 123 taught by Professor Other during the Spring '11 term at Pontificia Universidad Catolica Madre y Maestra.

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Lecture_3-1._Overview_of_the_Financial_System - 1 LECTURE 3...

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