Please enable JavaScript.
Coggle requires JavaScript to display documents.
LECTURE 1:FINANCIAL SYSTEM - Coggle Diagram
LECTURE 1:FINANCIAL SYSTEM
Financial Markets
Function of Financial Markets
Channels funds from surplus to shortage in economic players.
Direct finance: Borrowers obtain funds from lenders through securities sales.
Increases economic efficiency through efficient capital allocation.
Improve consumer well-being by enabling better purchase timing
Structure of Financial Markets
Debt instruments (contractual agreement) and Equities(residual claims to net income and assets)
Primary and Secondary Markets
Exchanges and Over-the-Counter(OTC)
Money markets(short-term - less than 1 year) and Capital markets (long-term - more than 1 year)
Financial Instruments
money market instruments
Fed funds
U.S Treasury bills
repurchase agreements
Commercial papers
Negotiable Bank Certificates of Deposits
capital market instruments
stocks
mortgages and mortgage-backed securities
corporate bonds
U.S. government securities
U.S. government agency securities
state and local government bonds
consumer and bank commercial loans
Financial Intermediaries
Function of Financial Intermediaries
Lower transaction costs
Reduce exposure of investors to risk
Deal with asymmetric information
Adverse Selection
Moral Hazard
Type of Financial Intermediaries
Depository institutions (banks)
Contractual savings institutions
Investment Intermediaries
Depository institutions (banks)