Lecture 1 - Introduction to Financial Systems (Forces behind increasing …
Lecture 1 - Introduction to Financial Systems
Forces behind increasing importance of the financial industry
Effects of globalisation on financial pitfalls
Borrowing not limited to national markets
Agents with surplus funds can take advantage of foreign markets
Financial institutions have a global presence
Harder to detect wrongdoings, ie. Ponzi Scheme.
Increased interaction and market spillover
Stock and bond markets move increasingly in sync
Effect of technology on financial services
Broader range of services - such as internet banking
Security and reliability remains an issue
Uncertainty over returns on large capital investments
Backward compatibility, and the increasing rate of new technology
Effect of Financial Innovation on Financial Services
design of new financial instruments
introduction of sophisticated computers in 1980's
What is a Financial System?
A system that introduces the concept of money into an economy
A system that channels money from entities with surplus funds to entities with a deficit of funds
A system that provides a mechanism for the transfer of financial risk
Functions of Money
Medium of exchange
Unit of Account
Store of Value
What are Financial Intermediaries?
Economics agents that specialize in the purchase and sale of financial securities
E.g Banks, Insurance Companies,
What are Financial Markets?
Markets in which funds are moved from people with surplus funds to people with a deficit of funds
have a direct effect on wealth and the behaviour of businesses