EC10H ECON1007: Elements of Banking and Finance - PowerPoint PPT Presentation
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EC10H ECON1007: Elements of Banking and Finance
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... economic agents capital budgeting, investment and finance choices. ... Investment institutions. Finance companies. Mutual funds. Money market mutual funds ... – PowerPoint PPT presentation
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Title: EC10H ECON1007: Elements of Banking and Finance
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EC10H (ECON1007) Elements of Banking and Finance
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Topic 1 Fields of Finance and the Basics of
the Financial System
- - The field of finance
- - Financial system and financial market
- - Financial institutions
- - Lenders and borrowers
- - Structure of financial markets
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Field of finance
- Finance is a field of economics it is applied
economics - Finance deals with financial decisions of
economic agents capital budgeting, investment
and finance choices. - It involves the use of statistics, econometrics,
and probability theory (decision-making under
uncertainty). - It covers such areas as capital budgeting, asset
pricing, corporate finance, and market
microstructure.
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Financial system and financial market
- Financial system (FS) a framework for
describing set of markets, organisations, and
individuals that engage in the transaction of
financial instruments (securities), as well as
regulatory institutions. - - the basic role of FS is essentially
channelling of funds within the different
units of the economy from surplus units to
deficit units for productive purposes. - Financial markets (FM) markets where transfer
of funds is carried out - - FM comprise of different participants
including households (individuals), business
houses (FIs) and government, who engage
in transaction of financial securities
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- - FM facilitate economic efficiency
operational efficiency, allocation efficiency
and informational efficiency - Financial Institutions
- FIs are organizations (firms) that engage in the
provision of financial services. - FIs are agents in the financial markets that deal
with buying and selling of securities (financial
instruments) on behalf of customers/public. That
is FIs are financial intermediaries.
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Structure of financial markets
Financial markets
Capital market
Money market
Secondary market
Exchange over-the-counter market
Primary market
Financial Institutions
- Investment institutions
- Finance companies
- Mutual funds
- Money market mutual funds
- Depository institutions
- Commercial banks
- Savings loans associations
- Mutual savings banks
- Credit unions
- Contractual savings institutions
- Life insurance companies
- Non-life insurance companies
- Pension funds
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Financial Institutions (contd.)
- FIs are agents in the financial markets that deal
with buying and selling of securities (financial
instruments) on behalf of customers/public. That
is FIs are financial intermediaries. - FIs can be classified as bank and non-bank,
deposit-taking and non-deposit taking. - Essentially, FIs perform the following roles in
the economy
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- Creation of assets and liabilities
- Reduction in transaction costs
- Risk sharing and transformation
- Funds mobilisation
- Liquidity creation
- Provision of payment mechanism
- Portfolio diversification
- Lenders and Borrowers
- There are no clear distinction between lenders
and borrowers in the financial markets. - Lenders and borrowers use different channels to
transact services
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Channels for Transferring of Funds
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