Powerpoint Slides Financial Institutions, Instruments and Markets Fourth Edition by Christopher Viney
Powerpoint Slides Financial Institutions, Instruments and Markets Fourth Edition by Christopher Viney
to accompany
Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, Financial Instruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slides prepared prepared by by Anthony Kaye Watson Stanger
Chapter 1
The Financial System
Websites: http://www.rba.gov.au http://www.asx.com.au http://www.ft.com/asia/
Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, Financial Instruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slides prepared prepared by by Anthony Kaye Watson Stanger
Learning Objectives
Explain the functions of a financial system Describe the main classes of financial
instruments issued in a financial system Distinguish between various types of financial markets according to function Discuss the flow of funds between savers and borrowers, including direct and intermediated finance
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financial markets Categorise the main types of financial institutions Understand the impact of a financial crisis on a financial system and a real economy
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Chapter Organisation
1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary
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1.1 Introduction
Money Medium of exchange Allows specialisation in production Solves the divisibility problem, i.e. where medium of exchange does not represent equal value for the parties to the transaction Facilitates saving Store of wealth
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Surplus units Savers of funds available for lending Deficit units Borrowers of funds for capital investment and consumption
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Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, Financial Instruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slides prepared prepared by by Anthony Kaye Watson Stanger
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Chapter Organisation
1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary
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Total financial compensation received from an investment expressed as a percentage of the amount invested Probability that actual return on an investment will vary from the expected return
Risk
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restructuring
The combination of assets and liabilities comprising the desired attributes of return, risk, liquidity and timing of cash flows
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Chapter Organisation
1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary
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Types
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Financial security
Interest rate-sensitive debt instruments, currencies and equities
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Chapter Organisation
1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary
Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, Financial Instruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slides prepared prepared by by Anthony Kaye Watson Stanger
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Matching principle
Short-term assets should be funded with
short-term liabilities
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Businesses
Company shares or debentures
Governments
Treasury notes or bonds
Individuals
Mortgage
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No direct impact on original issuer of security Transfer of ownership from one saver to another saver Provides liquidity which facilitates restructuring of portfolios of security owners
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Advantages
Avoids costs of intermediation Increases range of securities and markets
Disadvantages
Matching of preferences Liquidity and marketability of a security Search and transaction costs Assessment of risk, especially default risk
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Advantages
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Advantages (cont.)
Sectorial flow of funds The flow of funds between business, financial institutions, government and household sectors and the rest of the world Influenced by fiscal and monetary policy
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Retail markets Transactions conducted primarily with financial intermediaries by the household and smallmedium business sectors
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Money markets
Wholesale markets in which short-term
Term to maturity of one year or less Highly standardised form Deep secondary market
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Banks Finance companies Funds managers Building societies Credit unions Companies
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Capital markets
Markets in which longer-term securities are
Equity markets Corporate debt markets Government debt markets Foreign exchange markets Derivatives markets
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Chapter Organisation
1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary
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Chapter Organisation
1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary
Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, Financial Instruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slides prepared prepared by by Anthony Kaye Watson Stanger
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transactions to corporations and government Advice on mergers and acquisitions, portfolio restructuring, finance and risk management Provide some funding
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borrowers
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Chapter Organisation
1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary
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1.7 Summary
The financial system is composed of
financial institutions, instruments and markets facilitating transactions for goods and services and financial transactions
or hybrid
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according to
Primary and secondary transactions Direct and intermediated flows Wholesale and retail markets Money markets and capital markets Financial institutions
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