22%20The%20Financial%20System%20and%20Economic%20Growth

22%20The%20Financial%20System%20and%20Economic%20Growth - 1...

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Unformatted text preview: 1 22-1 The Financial System and Economic Growth 22-2 Agenda 1. The Role of the Financial System 2. Information Challenges & the Financial System 3. Government Regulation and Supervision 4. Financial Developments & Economic Growth 22-3 The Role of the Financial System The role of the financial system is to channel funds: 1. From households, businesses, and governments with surplus funds (i.e., saving) 2. To households, businesses, and governments with a shortage of funds. 22-4 The Role of the Financial System A well functioning financial system directs funds to where they will be most efficiently used, promoting economic stability and economic growth. The financial system is very complex. 2 22-5 The Role of the Financial System 22-6 The Role of the Financial System Direct finance channels funds: 1. From lenders-savers 2. To borrowers-spenders directly through the financial markets . 22-7 Direct Finance Borrowers borrow funds directly from savers by selling (or issuing) financial instruments or securities which include: 1. Equities, which are a ownership share of a business, or 2. Bonds, which are a debt instrument. These securities are liabilities of the entity selling (or issuing) them. 22-8 Direct Finance Financial markets include: 1. Exchanges locations where buyers and sellers of securities conduct business. 2. Investment banks financial institutions that trade securities and assist businesses and governments issue them. 3 22-9 The Role of the Financial System...
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This note was uploaded on 09/05/2011 for the course ECON 100B taught by Professor Wood during the Spring '08 term at University of California, Berkeley.

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22%20The%20Financial%20System%20and%20Economic%20Growth - 1...

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