Chapter 3 provides knowledge of financial instruments, financial markets, and financial institutions. In this chapter we will survey the financial system in three steps: Financial instruments or securities, financial markets, financial institutions. | Chapter Three 3- Introduction The international financial system exists to facilitate the design, sale, and exchange of a broad set of contracts with a very specific set of characteristics. We obtain financial resources through this system: Directly from markets, and Indirectly through institutions. 3- Introduction Indirect Finance: An institution stands between lender and borrower. We get a loan from a bank or finance company to buy a car. Direct Finance: Borrowers sell securities directly to lenders in the financial markets. Direct finance provides financing for governments and corporations. Asset: Something of value that you own. Liability: Something you owe. 3- Figure : Funds Flowing through the Financial System 3- Introduction Financial development is linked to economic growth. The role of the financial system is to facilitate production, employment, and consumption. Resources are funneled through the system so resources flow to their most efficient | Chapter Three 3- Introduction The international financial system exists to facilitate the design, sale, and exchange of a broad set of contracts with a very specific set of characteristics. We obtain financial resources through this system: Directly from markets, and Indirectly through institutions. 3- Introduction Indirect Finance: An institution stands between lender and borrower. We get a loan from a bank or finance company to buy a car. Direct Finance: Borrowers sell securities directly to lenders in the financial markets. Direct finance provides financing for governments and corporations. Asset: Something of value that you own. Liability: Something you owe. 3- Figure : Funds Flowing through the Financial System 3- Introduction Financial development is linked to economic growth. The role of the financial system is to facilitate production, employment, and consumption. Resources are funneled through the system so resources flow to their most efficient uses. 3- Introduction We will survey the financial system in three steps: Financial instruments or securities Stocks, bonds, loans and insurance. What is their role in our economy? Financial Markets New York Stock Exchange, Nasdaq. Where investors trade financial instruments. Financial institutions What they are and what they do. 3- Financial Instruments Financial Instruments: The written legal obligation of one party to transfer something of value, usually money, to another party at some future date, under certain conditions. The enforceability of the obligation is important. Financial instruments obligate one party (person, company, or government) to transfer something to another party. Financial instruments specify payment will be made at some future date. Financial instruments specify certain conditions under which a payment will be made. 3- Uses of Financial Instruments Three functions: Financial instruments act as a means of payment (like money). Employees .
