| Chapter 1 A modern financial system—an overview Websites: Learning objectives Explain the functions of a financial system Categorise the main types of financial institutions Describe the main classes of financial instruments issued in a financial system Discuss the flow of funds between savers and borrowers, and through the financial system and economy Distinguish between various types of financial markets according to function Appreciate the importance of globalisation of financial markets Understand the effects and consequences of a financial crisis on a financial system and economy Chapter organisation Functions of a financial system Financial institutions Financial instruments Financial markets Flow of funds, market relationships and stability Summary Functions of a financial system Money Acts as medium of exchange Allows specialisation in production Solves the divisibility problem; . where medium of exchange does not represent equal value for the parties to the transaction Facilitates saving Represents a store of wealth (cont.) Functions of a financial system (cont.) Role of markets Facilitate exchange of goods and services by: bringing opposite parties together establishing rates of exchange; . prices Surplus units Savers of funds available for lending Deficit units Borrowers of funds for capital investment and consumption (cont.) 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 (cont.) 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 . | Chapter 1 A modern financial system—an overview Websites: Learning objectives Explain the functions of a financial system Categorise the main types of financial institutions Describe the main classes of financial instruments issued in a financial system Discuss the flow of funds between savers and borrowers, and through the financial system and economy Distinguish between various types of financial markets according to function Appreciate the importance of globalisation of financial markets Understand the effects and consequences of a financial crisis on a financial system and economy Chapter organisation Functions of a financial system Financial institutions Financial instruments Financial markets Flow of funds, market relationships and stability Summary Functions of a financial system Money Acts as medium of exchange Allows specialisation in
