Functions of a Financial System

In: Business and Management

Submitted By mattcan94
Words 1779
Pages 8
1-1

A Modern Financial System—An Overview

1-2

Learning Objectives
• Explain the functions of a financial system • The main types of financial institutions • Describe the main classes of financial instruments issued in a financial system • The flow of funds between savers / borrowers • Distinguish between various types of financial markets according to function • Appreciate the importance of globalisation • Understand the effects and consequences of a financial crisis on a financial system and economy
1-3

1

Functions of a Financial System
• Money – Acts as medium of exchange – Solves the divisibility problem, i.e. where medium of exchange does not represent equal value for the p q parties to the transaction – Facilitates saving – Represents a store of wealth

1-4

Functions of a Financial System (cont.)
• Role of markets – Facilitate exchange of goods and services by  bringing opposite parties together  establishing rates of exchange, i.e. prices • Financial Markets consist of: • Surplus units – Savers of funds available for lending • Deficit units – Borrowers of funds for capital investment and consumption
1-5

1.1

Functions of a Financial System (cont.)

1-6

2

Functions of a Financial System (cont.)
• Financial instrument – Issued by a party raising funds, acknowledging a financial commitment and entitling the holder to specified future cash flows • Double coincidence of wants satisfied – A transaction between two parties that meets their mutual needs

1-7

Functions of a Financial System (cont.)
• Flow of funds – Movement of funds through the financial system between savers and borrowers giving rise to financial instruments • Financial system – Comprises financial institutions, instruments and markets facilitating transactions for goods and services and financial transactions

1-8

Functions of a Financial System…...

Similar Documents

Financial System

...Notes on MONEY, BANKING, AND FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College irelandp@bc.edu http://www2.bc.edu/~irelandp/ec261.html Chapter 2: An Overview of the Financial System 1. Function of Financial Markets and Financial Intermediaries 2. Structure of Financial Markets Debt and Equity Markets Primary and Secondary Markets Exchanges and Over-the-Counter Markets Money and Capital Markets 3. Financial Instruments Money Market Instruments Capital Market Instruments 4. Role of Financial Intermediaries Transaction Costs and Economies of Scale Risk Sharing and Diversification Adverse Selection and Moral Hazard 5. Types of Financial Intermediaries Depository Institutions (Banks) Contractual Savings Institutions Investment Intermediaries This chapter provides an overview of the financial system in the US economy by describing the various types of financial markets, financial instruments, and financial institutions or intermediaries that exist. 1 The chapter begins with a general statement that clarifies what function financial markets and financial intermediaries have in the economy as a whole. It then deals more specifically with: The structure of financial markets and the ways in which different types of financial markets can be distinguished. Here, it discusses debt versus equity markets, primary versus secondary markets, exchanges versus over-the-counter markets, and money versus capital markets. The various types of financial instruments, including both......

Words: 2854 - Pages: 12

Nervous Systems, Function and Survival

... Nervous systems, function and survival Invertebrates and vertebrates are compiled of many different cells, systems and functioning pathways all of which are maintained by homeostasis. In this essay I will discuss the connection between homeostasis and the nervous system; briefly compare an invertebrates and vertebrates nervous system; nerve cells and how an organism’s behaviour can be determined by these factors. To survive every living organism endeavours to maintain a sense of balance, or homeostasis. This is an internal process which repairs and sustains different parameters and is constantly challenged by both internal and external factors. An organism’s nervous system, which can control thousands of activities simultaneously (both voluntary and involuntary), transmits signals between the different parts of the body and is responsible for regulating the processes which maintain homeostasis. (Datta et al. 2006 pp.8-10) In invertebrates the nervous system consists of either a nerve net (such as in jellyfish) or neurons grouped together forming ganglia which make up the nerve cord, or CNS of the organism (as found in earthworms). (Datta et al. 2006 pp.47-9) In contrast the nervous system in vertebrates can be divided into two parts, the brain (the control centre of the body) and the spinal cord, collectively known as the central nervous system (CNS) and all the other nerves in the body, collectively known as the peripheral nervous system (PNS). (Datta et al...

Words: 884 - Pages: 4

Financial Functions Division

...Financial & Accounting Function Teams and Responsibilities 1. Operations Reporting Team .Internal customer BU/departments to serve - Operations & Training, Stores . Key Responsibilities a. Restaurant Accounting/invoice processing- Cash & Sales, Accounts Payable, Real Estate & Construction (Fixed Assets), Food & Paper and inventory, Crew Payroll/MPF and G&A expenses b. Daily/Weekly sales and key KPI decentralized reporting and monitoring c. Monthly Closing and Store P&L, Balance Sheet and Cashflow Reporting and Review d. Monthly Restaurant Consulting-P&L Profitability opportunities and follow up action plans 2. Planning and Analysis Team .Internal customer BU/departments to serve - Real Estate & Construction, Marketing, Human Resources, Supply Chain, IT . Key Responsibilities a. Provide financial vision, insight and strategy, and lead annual business planning and budgeting process b. Monthly rolling forecasting (income projection) c. Quarterly business review and monthly financial commentary & presentation d. Provide key decision support via Pre and Post analysis of :- Capital Expenditure/Lease (new store development and re-imaging, IT), Marketing promotion programs and new menu items HR Benefits (including new bonus scheme) Menu price adjustment Food Suppliers contracts New Business projects (eg Food Delivery, Dessert Kiosks) e. Ongoing development and upgrade of financial...

Words: 318 - Pages: 2

Function of Education System

...Examine the different functions perform by the education system Different theories try to explain the function and role of education in society. Some look at the positive side of education and others the more negative side due to some pupils only being exploited in the education system. Despite all having different views that can be related to, they also all have their advantages and disadvantages meaning some arguments are stronger than others. One group of sociologists, the functionalists, believe that education has four main functions to help society. One role of education is to create social solidarity. It is Durkheim who believes that this is essential for the survival of societies. He believes that it helps to bring people together as it enables students to share similar beliefs, norms and values. Education helps to bind the members of a society together as there are essential similarities that help people to unite and all feel a sense of belonging. The way schools helps to allow its students to feel apart is by making all students wear a uniform enabling everyone to have something in common and to feel apart of a community. Lessons such as history, CPSHE and R.S help to weld the diverse mass of people into a nation as we realise we have much in common with each other. The second function is to allocate people to the role and job by testing students to discover talents and then develop the talent to enable them to find a job that will best suit them in the future....

Words: 2026 - Pages: 9

The Purpose and Functions of an Operating System

...The Purpose and Functions of an Operating System Jaclyn Lacey NT1110 Thursday Evening Module 1 Short Answer Mr. Kelly The Purpose and Functions of an Operating System An OS (operating system) of a computer is necessary for ease of use, managing data and to interact with Input/output devices. It has 5 key functions; Boot the computer, Manage input and output devices, provide a GUI (graphical user interface) for user friendliness, manage system resources and manage data. There are three major Operating Systems. They are Windows, Linux and Mac OS. The Windows Operating System is the most user friendly operating system. It is used by many companies in a business setting as well as by others in home setting. It is the Operating System of choice for most computer gamers. As well as the geeky programmer type. It incorporates many applications such as a web browser, command line interface, word processor and file managing. It stores files in libraries that make it easy to find your files. It has had many versions the most commonly used today are Windows XP, Windows 7 and Windows 8. Windows 95 was the first of the Windows OS’s all in one operating system and GUI. Linux is another Operating System. It is made to run on personal computers, gaming consoles, DVR’s, mobile phones and many other devices. About 1-2% of the US population uses the Linux OS. It can be freely downloaded by anyone. It is for the super geek programmer who may change the code writing...

Words: 657 - Pages: 3

Function of Financial System

...process is an essential aspect of modern management. It is a primary function of management. Decisions are important as they determine both managerial and organizational actions. A decision may be defined as "a course of action which is consciously chosen from among a set of alternatives to achieve a desired result." It represents a well-balanced judgment and a commitment to action. However, there are many factors that affect to decision making process. The two articles “Strategic decision-making process: The role of management and context” (Vassilis M. Papadakis, Skyros Lioukas and David Chamber) (called article 1) and “Factors influencing strategic decision-making processes” (Mahmood Nooraie) (called article 2) that I’ve read also mentioning some main aspects which impact decision-making process of manager. In my self-reflection report I will summarize and analyze both of two articles’s views. Additionally, the key results, the strengths and weaknesses of two articles will be point out. 2. Discussion a. The objectives and hypotheses of the articles. The two articles explore strategic decision-making process and factors affect the process (article 1), especially the management and contextual factors. Strategic decisions are long term, highly unstructured, complex and inherently risky and have a great impact on the future of organization. Through seven dimensions (comprehensiveness/rationality, financial reporting, rule formalization, hierarchy decentralization,......

Words: 1873 - Pages: 8

Financial System

...------------------------------------------------- Financial System of Bangladesh The Financial System is a set of institutional arrangement through which surplus units transfer their fund to deficit units. At present the financial system in Bangladesh is mainly composed of two types of institutions like banks and non-bank financial institution (NBFIs). The formal financial sector in Bangladesh includes: (a) Bangladesh Bank as the central bank, (b) 48 commercial banks, including 4 Government owned commercial banks, 30 domestic private banks (PCBs) (of which 6 banks are operating under Islamic Shariah), 9 foreign banks (FCBs) (of which 1 bank is operating as Islamic bank); and 5 government-owned specialized banks (DFIs); (c) 28 non-bank financial institutions (NBFIs) – licensed by the Bangladesh Bank); (d) 2 large government- owned insurance companies (life and general) and 60 private owned (17 life and 43 general) insurance companies; (e) 2 stock exchanges and, (f) some co-operative banks. Besides, a good number of semi-formal micro finance institutions (MFIs) also are operating in Bangladesh. Structure of Financial System: The main constituents of financial system are : i) Financial Institutions ii) Financial Instruments, and iii) Financial Markets. Financial Institutions The modern name of Financial Institution is Financial Intermediary (FI), because it mediates or stand between ultimate borrowers and ultimate lenders and helps transfer funds from one to......

Words: 6352 - Pages: 26

The Function of Financial Markets

...TOPIC  7  –  FINANCIAL  MARKETS   Eco 304L   Fall  2014   Topic  6  –  Financial  Markets   The  Financial  System  -­‐  How  Businesses  Finance   Themselves   Saving  and  Investment  (National  Income   Accounting  Redux)   Ricardian  Equivalence  and  Temporary  vs.   Permanent  Taxt  Cuts   The  Market  For  Loanable  Funds  –  Modeling   Financial  Markets     1   Topic  6  –  Financial  Markets   The  Financial  System  -­‐  How  Businesses  Finance   Themselves     The  Financial  System   The  Pinancial  system  is  made  up  of  !inancial   institutions  that  bring  borrowers  and  lenders   together   ¤  Financial  markets:    institutions  through  which   borrowers  and  lenders  come  together  directly   ¤  bond  markets   n  stock  markets   n  ¤  Financial  intermediaries:    organizations  that   interact  with  borrowers  and  lenders  separately  and   bring  them  together  indirectly   banks   n  mutual  fund   n    2   Financing  a  company   ¨  How  can  a  company  raise  funds?   Self-­‐!inance   ¤  Borrow ......

Words: 1610 - Pages: 7

Financial Systems

...Financial Systems How does the financial inter-mediation process can enhance the efficiency of financial system? (Give a comprehensive description considering the different components of the financial system & the relationship, each of these components having with financial inter-mediation) Financial system is a system with differences at several levels in firm’s level; it is system to track the financial activities of the company. In national level financial system is a system that enables lenders and borrowers to exchange funds and the global financial system is basically a broader regional system that encompasses all financial institutions, borrowers and lenders within the global economy. In a broader sense financial system operates the financial activities including financial intermediation. According to the central Bank of Sri Lanka; Financial System mainly consists of financial institutions, financial markets, financial instruments and financial infrastructure. Financial Intermediation simply identified as a process performed by an entity of taking in funds from a depositor and then lending them out to a borrower. This entity, in general called as a financial intermediary. It can be a commercial bank or other financial institutions such as investment banks, insurance companies, broker-dealers, mutual funds and pension funds. Financial intermediaries offer a number of benefits to the average consumer including safety, liquidity and economies of scale. The banking...

Words: 337 - Pages: 2

Financial Systems

...2  The role of financial systems in the economy This section iscusses the main functions of financial intermeiaries an financial markets, an their comparative roles. Financial systems, i.e. financial intermeiaries an financial markets, channel funs from those who have savings to those who have more prouctive uses for them. They perform two main types of financial service that reuce the costs of moving funs between borrowers an leners, leaing to a more efficient allocation of resources an faster economic growth. These are the provision of liquiity an the transformation of the risk characteristics of assets.[2] 2.1  Provision of liquiity The link between liquiity an economic performance arises because many high return investment projects require long-term commitments of capital, but risk averse leners (savers) are generally unwilling to elegate control over their savings to borrowers (investors) for long perios. Financial systems mobilise savings by agglomerating an pooling funs from isparate sources an creating small enomination instruments. These instruments provie opportunities for iniviuals to hol iversifie portfolios. Without pooling iniviuals an househols woul have to buy an sell entire firms (Levine 1997). iamon an ybvig (1983) show how financial intermeiaries can enhance risk sharing, which can be a preconition of liquiity, an can thus improve welfare. In their moel, without an intermeiary (such as a bank), all investors are locke into illiqui long-term investments......

Words: 2461 - Pages: 10

Excel Financial Functions

...Excel for financial calculations? Microsoft Office Excel is a great computer program that is widely used throughout the financial industry. Excel is an invaluable tool in Finance and Accounting. Of course professionals also use special financial calculators. But a financial calculator can be expensive for students. It is not intuitive to use and unless they become investment bankers or realtors, most students will never use it after finishing the financial course. Fortunately, it is very easy to create a financial calculator for free if you have Excel on your computer. In fact, an Excel calculator can do much more than a dedicated financial calculator. Another advantage is the fact that if you learned how to use financial functions of Excel you will be able also to use a special financial calculator should the need arise. Below is a short introduction of how to start using MS Excel for financial calculations. Inserting Functions Excel comes with a wide array of functions that can easily be inserted into a spreadsheet. Adding a function is as easy as clicking on the "Insert Function" button on the top tool bar. Insert Function Button If you don't see the "Insert Function" button on your tool bar, you can easily add it by clicking: Tools > Customize > Commands > Find and click on Insert in the left-hand scroll-down menu. Then, find "Insert Function" in the right-hand scroll-down menu and click and drag it to your tool bar. Clicking on the "Insert Function" button......

Words: 488 - Pages: 2

Financial System

...“The role of the financial system in a market economy is to effectively and efficiently move funds from surplus budget units to deficit budget units.” However, in the absence of well-functioning financial intermediaries this transfer of funds may be severely retarded.” Discuss. Within a financial system, surplus and deficit units trade, which facilitates the movement of funds from deficit units to have access to those with the budgeted units. Hence, there is always the incentive to trade. The role of the financial system is also to allow the deferral of expenditure. The question is often asked, how can this exchange of funds take place, one may think of it as a do it yourself project, like selling your house, without a real estate agent, an individual can simply make a profit and cash in on funds without having to pay the middle man. Persons are often of the belief direct financing may be easier than the use of an intermediary, this occurs where ultimate users and ultimate providers of the funds exchange claims directly with each other without the use of the bank, however, it is not as simple as it seems. Many issues may arise that is why there is the need for well-functioning financial intermediaries. Also known as indirect financing this is where institutions pool savings together and investments of those with surplus budgeted units and lend them to persons within deficit units in order to receive a return. Financial intermediaries transform financial assets that are......

Words: 1276 - Pages: 6

Financial System

...A financial system is a system that to channels funds from lenders to borrowers, to create liquidity and money, to provide payments mechanism, to provide financial services. The present structure of the financial system in Bangladesh comprises of various types of banks, insurance companies, non-bank financial institutions and share market. Money market Bank NBFI Share market Insurance Bank: Bangladesh Bank is at the top of the banking system and is accountable for assuring prudential administration and central banking activities for all types of banks operating within the banking industry. Bangladesh Bank monitor, control the overall banking system. Banks in Bangladesh are two types: a) Scheduled Banks, b) Non Schedule bank. a) Schedule Bank: Basically Schedule bank is two type: i) State owned commercial bank. i.e. Sonali bank. ii) Private commercial bank. i.e. Prime bank, Islami bank NBFI: Non-banking financial institutions, which are not, banks. These institutions cannot perform all functions of banks. NBFI cannot issue check, not allowed to take all type of deposits except fixed deposit. It provides long term loan. Not regulated all the time by Bangladesh bank. For example: IDLC Share market: Bangladesh Securities and Exchange Commission (BSES) is the regulator of Share market.......

Words: 356 - Pages: 2

Relationship Between a Financial System or Function and Other System or Functions in an Organisation

...1.1 Finance plays a key role in the functioning of any organisation because a steady flow of funds is required to make planned expenditure for delivering products and services and the sale of these products and services generates the necessary funds to make a profit. Any activity undertaken by any of the other departments without proper financial consideration can have a detrimental effect. For instance, if the sales team decides to offer extended credit or discounts to increase sales, this will affect cash flow and finance will not be able to collect cash for the business when the need arises. Similarly, purchase may decide to pay suppliers quickly or place bulk orders in order to avail a discount, but there may not be sufficient funds available immediately. This may affect relationship with the suppliers. The financial situation of the company inturn dictates activities of the other departments. For example, if there is a shortage of funds with the finance department, the sales team may not be able to offer prospective customers attractive discounts and extended credit, thereby making the competitors’ offer more attractive. Shortage of funds may also affect marketing thereby reducing overall income. Also prioritisation of planned projects will be required and this may affect overall strategy of the company. Hence a two-way dependence is observed. In order to avoid such problems, it is therefore important to have effective communication between the finance and other......

Words: 298 - Pages: 2

Financial System

...3. Classification of Financial Instruments lassification of financial instruments and identification of their nature is one of the most important phases for compilation and presentation of monetary statistics. Like other classifications used in monetary statistics, it is also advisable here to follow international standards that would help to make statistics comparable across countries’ and ensure its unity. In carrying out classification, there will be a need to consider features of a country’s banking and financial system paying a due regard to their development prospects. C Financial instruments are financial contracts of different nature made between institutional units. These comprise the full range of financial claims and liabilities between institutional units, including contingent liabilities like guarantees, commitments, etc. Financial asset is defined as any contract from which a financial claim may derive for one party and a financial liability or participation in equity for another. Financial instrument can exist only between two institutional units. Where financial instruments are compounded, i.e. represent a set of several instruments, for compilation of statistics there will be a need to distinguish them into separate instruments so that each of them includes only a single pair of institutional units. Financial assets are contracts that do not contain contingency, i.e., irrespective of any conditions, generate financial claims having demonstrable......

Words: 5536 - Pages: 23