Financial System

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BUS 362 Financial Institutions and
Markets
Week 2: Financial System
Assoc. Prof. Hülya Hazar
Faculty of Economics and Administrative Sciences, Department of
Business Administration
[email protected]
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Financial Institutions and Markets
1. Overview of the Financial System
2. Function of Financial Markets
3. Segments of Financial Markets
4. Importance of Financial Markets
5. Structure of Financial Markets
6. Internationalization of Financial Markets
7. Intermediaries
8. Regulation of Financial Markets
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Financial Institutions and Markets
Overview of the Financial System
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Financial Institutions and Markets
Function of Financial Markets
• Channels funds from person or business without investment
opportunities (i.e., “Lender-Savers”) to one who has them
(i.e., “Borrower-Spenders”)
• Improves economic efficiency
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Financial Institutions and Markets
Financial Markets Funds Transferees
Lender-Savers
1. Households
2. Business firms
3. Government
4. Foreigners
Borrower-Spenders
1. Business firms
2. Government
3. Households
4. Foreigners
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Financial Institutions and Markets
Segments of Financial Markets
• Direct Finance
• Borrowers borrow directly from lenders in financial
markets by selling financial instruments which are claims
on the borrower’s future income or assets
• Indirect Finance
• Borrowers borrow indirectly from lenders via financial
intermediaries (established to source both loanable funds
and loan opportunities) by issuing financial instruments
which are claims on the borrower’s future income or
assets
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Financial Institutions and Markets
Flows of Funds Through the Financial System
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Financial Institutions and Markets
Importance of Financial Markets
• Saver and spender meets
• Efficient allocation of capital
• Improve the well-being of consumers
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Financial Institutions and Markets
Structure of Financial Markets
• Debt Markets - Equity Markets
• Primary Market - Secondary Market
• Exchanges - Over-the-Counter Markets
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Financial Institutions and Markets
Classifications of Financial Markets by Maturity
• Money Market
• Capital Market
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Financial Institutions and Markets
Internationalization of Financial Markets
• International Bond Market & Eurobonds
• Eurocurrency Market
• World Stock Markets
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Financial Institutions and Markets
Intermediaries: Indirect Finance
• Banks and financial institutions
• More important source of finance than securities markets
• Financial intermediaries reduce adverse selection and
moral hazard problems
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Financial Institutions and Markets
Main Reasons for Regulation of Financial Markets
• Increase Information to Investors
• Ensure the Soundness of Financial Intermediaries
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Subjects Covered
1. Overview of the Financial System
2. Function of Financial Markets
3. Segments of Financial Markets
4. Importance of Financial Markets
5. Structure of Financial Markets
6. Internationalization of Financial Markets
7. Intermediaries
8. Regulation of Financial Markets
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References
Readings:
Chapter 2
Reference Book:
Mishkin, Frederic S. Financial Markets and Institutions. Eighth Edition.
UK: Pearson, 2016.
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Financial Institutions and Markets
See you next week…
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