Chapter 1 - An overview of financial markets and institutions. Chapter 1 presents an overview of the financial system and how it facilitates the allocation of money throughout the economy. The chapter begins by describing the role of the financial system, defining surplus and deficit spending units, and describing characteristics of financial claims. | Power Point Slides for: Financial Institutions, Markets, and Money, 9th Edition Authors: Kidwell, Blackwell, Whidbee & Peterson Prepared by: Babu G. Baradwaj, Towson University And Lanny R. Martindale, Texas A&M University CHAPTER 1 An Overview of Financial Markets and Institutions The Financial System Provides for efficient flow of funds from saving to investment by bringing savers and borrowers together via financial markets and financial institutions. Exhibit – Transfer of Funds Basic components of the financial system: Markets and institutions. Financial markets are markets for financial instruments, also called financial claims or securities. Financial institutions (also called financial intermediaries) facilitate flows of funds from savers to borrowers. Economic units with financial needs: Households, Businesses, Governments. Households supply labor, demand products, and save for the future. Businesses demand labor, supply products, and invest in productive . | Power Point Slides for: Financial Institutions, Markets, and Money, 9th Edition Authors: Kidwell, Blackwell, Whidbee & Peterson Prepared by: Babu G. Baradwaj, Towson University And Lanny R. Martindale, Texas A&M University CHAPTER 1 An Overview of Financial Markets and Institutions The Financial System Provides for efficient flow of funds from saving to investment by bringing savers and borrowers together via financial markets and financial institutions. Exhibit – Transfer of Funds Basic components of the financial system: Markets and institutions. Financial markets are markets for financial instruments, also called financial claims or securities. Financial institutions (also called financial intermediaries) facilitate flows of funds from savers to borrowers. Economic units with financial needs: Households, Businesses, Governments. Households supply labor, demand products, and save for the future. Businesses demand labor, supply products, and invest in productive assets. Governments collect taxes and provide “public goods” (. education, defense). Budget positions creating financial needs of economic units: Surplus or deficit. Surplus spending units ( SSUs) have income for the period that exceeds spending, resulting in savings. Other words for “SSU” are saver, lender, or investor. Most SSUs are households. Deficit spending units (DSUs) have spending for the period that exceeds income. Another word for “DSU” is “borrower”. Most DSUs are businesses or governments. Financial claims arise as SSUs lend to DSUs. SSU’s claim against DSU is liability to DSU and asset to SSU. One’s liability is another’s asset: What is payable by one is receivable by another. Assets arising this way are “financial assets.” The financial system “balances”-total financial assets equal total liabilities. Marketability: Ease with which a financial asset may be sold to another SSU. Ability to resell financial claims makes them more liquid by giving SSUs choices:
