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Financial System + Market - Coggle Diagram
Financial System + Market
Fin system
fin market
key markets
capital market
liquidity: low
Instruments
: Long-term securities
bond (debt)
stock (equity)
others
preferred stocks
convertible bonds
maturity: >1y
types
Broker Markets and dealer Markets
primary vs secondary
`money market
instrument
: short-term debt, or
marketable securities
, which are short-term debt instruments
commercial paper
U.S. Treasury bills
negotiable certificates of deposit
Repurchase agreements
interbank loans
lliquidity
: high
maturity
: 1 year or less
def
forums in which suppliers of funds and demanders of funds
can transact business directly
func
some need of
seasonal or temporary financing,
other wish to invest in a
relatively safe, interest-bearing
asset
Transmit economic information
Price discovery from supply and demand
limitation
lim
Expensive for small businesses to issue new securities and be compliant with legal requirements
• Market volatility: for example, due to herding behavior
• Asymmetric information
fix
Listed firms are required to disclose certain financial information
• In an efficient market, a firm’s stock price reflects all relevant information about the firm
Asym?
Fin institution
def
intermediaries by channeling the savings of individuals, businesses, and governments into loans or investments
roles
provide services for a fee
accept customers’ savings deposits and lend this money to other
directly or indirectly pay savers interest on deposited funds
invest customers’ savings in earning assets
accept customers’ savings deposits
required by the government to operate within established regulatory guidelines.
key customer
key suppliers
of funds and the key demanders of
funds are individuals, businesses, and governments
net supplier
: individuals
save more than borrow
net demander:
firms + gov
borrow more than save
participants
Banks, finance companies
• Insurance companies
• Pension funds, hedge funds
Functions
Clearing and settling payments
• Pooling resources and subdividing shares
• Transferring resources across time and space
• Providing information
• Dealing with incentive problems
• Managing risk
Flow of funds