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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

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Why Study Money, Banking, and Financial Markets?

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  1. Why Study Money, Banking, and Financial Markets? Chapter 1 By: Madam Maira Zaib www.IMSciences.net

  2. Why Study Money, Banking, andFinancial 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

  3. Financial System; Introduction Financial Systemis 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.

  4. Lending and borrowing relationships in a financial system

  5. 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.

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

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