chapter 1 Introduction to Financial Markets and Institutions

distinguish between direct financing and intermediation(indirect financing)

the role of international markets in providing funds to Australian entities

distinguish between primary and secondary markets

an explanation of
funds flows in the economy

the factors which determine saving

the benefits of intermediation

desirable characteristics of financial maekets

how financial markets transfer funds between sectors and entities

the aims, institutions and techniques of financial regulation in Australia

The role of financial markets is to transfer funds from those who wish to lend them to those who need to borrow them

directly

indirectly

The allocation of funds for alternative uses is the key function of the financial system and, in a deregulated environment, interest rates are the major tool used to accomplish this allocation.

functions

saving=income-consumption expenditure

saving-investment expenditure=surplus to be lent to financial system

the source of households

saving

borrowing from other households or financial institutions

the sale of assets

how to use household fund

purchase real assets

lent to other economic units

The household is then said to be a surplus economic unit because it is lending funds to other economic units in the economy.

If the household reduces its holdings of assets or accepts an increased amount of liabilities, it is a deficit economic unit and is a net borrower from the financial system

saving

The life-cycle theory indicates that aggregate saving will depend on the age composition of the population. Thus, all other things being equal, the ageing of our population will lead to a decline in aggregate saving.

A major influence on saving is household income

According to the life-cycle theory of saving, the increasing proportion of retirees in the population will lead to an even theory of saving, the increasing proportion of retirees in the population will lead to an even lower average household savings ratio. It is, therefore, important to ask what can be done to increase the household savings ratio.