Download Why Study Money, Banking, and Financial Markets?

Why Study Money,
Banking, and Financial
Markets?
Chapter 1
By: Madam Maira Zaib
www.IMSciences.net
Why Study Money, Banking, and
Financial Markets
To examine the role of money in
the economy

To examine how financial institutions
such as banks and insurance
companies work

To examine how financial markets
such as bond, stock and foreign
exchange markets work

Financial System; Introduction
Financial System is the group of individuals,
intermediaries and institutions that can potentially
interact or participate in transactions that involve real
or financial assets.

The financial assets are instruments that facilitate
transactions in real assets or constitute the subject of a
transaction between market participants.

The financial markets facilitate the trading of financial assets
between market participants and

The financial intermediaries facilitate the financial transactions
of market participants.
Lending and borrowing relationships in
a financial system
Financial system participants
The Financial System provides the environment
in which the individual investors and companies
operate.
Financial system participants:
– Individuals.
– Companies.
– Financial institutions, private and public organizations.
– Governments.
Financial Intermediaries


Financial Intermediaries (FI) are companies
that act as mediators between surplus and
deficit economic agents.
Financial Intermediaries:
– Deposit takers.

Banks
– Non-deposit takers


Contractual Saving Institutions
Investment Intermediaries
Financial Markets
Financial markets (FMs) are organized and
highly regulated mechanisms that facilitate
the transactions between investors and
companies or other market participants that
act as investors or intermediaries.
 Direct & Indirect Markets
 Primary & Secondary Markets
 Money & Capital Markets
Financial Markets

Markets in which funds are transferred
from people who have an excess of
available funds to people who have a
shortage of funds
The Bond Market and Interest Rates
A security (financial instrument) is a
claim on the issuer’s future income
or assets
 A bond is a debt security that promises
to make payments periodically for a
specified period of time
 An interest rate is the cost of borrowing
or the price paid for the rental of fund

The Stock Market


Common stock represents a share of
ownership in a corporation
A share of stock is a claim on the
earnings and assets of the corporation
The Foreign Exchange Market
• The foreign exchange market is where
funds are converted from one currency
into another
• The foreign exchange rate is the
price of one currency in terms of
another currency
• The foreign exchange market
determines the foreign exchange rate
Banking and Financial Institutions
• Financial Intermediaries—institutions that borrow
funds from people who have saved and make
loans to other people
• Banks—institutions that accept deposits and
make loans
• Other Financial Institutions—insurance
companies, finance companies, pension funds,
mutual funds and investment banks
• Financial Innovation—in particular, the advent of
the information age and e-finance