FINS2618: Capital Markets and Institutions
Lecture 1: Introduction Financial system & Banking
Roadmap for TODAY’s lecture
1. Course Requirements & Expectations
2. Introduction to Financial System (Chapter 1)
3. Banking (Chapter 2) – continuing in week 2
FINS2618
Course Expectations T2 2023
Lecturer in Charge
: Dr Natalie OH
Tutor in Charge :
Mr Shakib Tehari
TEACHING
TEAM ROLE
ILab Instructor :
Mr Kevin Zhang
Teaching
Assistant : Mr
Kevin Zhang
Tutors : Shakib
Tehari, Kevin
Zhang & Annie
Deng
• Lecture content
• Final marks
• Course design
• Lecture contribution
• Tutorial Questions & Solutions
• Tutorial Discussion Forum
• ilab content & iLab assessments
• iLab discussion forum
• Discussion forum (lecture content + assessment)
• Tutorial content
• Tutorial contribution
SNAPSHOT of T2 FINS2618
Let’s visit FINS2618 Moodle Site
Time Planning
 What is the expected number of hours that you dedicate to 6 UOC?
 150 hours for 10 weeks
 15 hours per week
 2 hours lecture
 1.5 hours tutorial
 Pre-assigned readings (1-2 hours)
Expectations
 McGrawHill chapters
 Pre-lecture slides
 Pre-assigned tutorial question (attempt) ( 1 hour)
 McGrawHill SMART BOOK Questions (1-2 hour)
Roughly 8 hours per week
 The rest of 7 hours?
 iLab, group assignment, exam preparation
Frequently Asked Question
• Course Requirement: FINS2618 has Course Contribution assessment (10%)
• Course Contribution (10%) ≠ attendance (for both lecture and tutorial)
• However, attendance is required to contribute, if you are not able to make it to lectures & tutorials then
• 5 options :
1. we understand unexpected situation occur so we will take 7 /9 weeks (both lecture/tutorial)
2. Just like any assessment items, apply for SPECIAL CONSIDERATION, if you have a legitimate
reason
3.
4.
5.
• Work is not a legitimate reason (this policy is from the faculty not at the course level so don’t blame the
course!)
• Timetable clash – there should not be a timetable clash with the lecture time
McGrawHill Connect chapter questions – progress 100% for all weekly assigned chapters
Forgo Course contribution marks – ( if only for lecture contribution, then ½ Course
Contribution mark)
Finally, do the course another term
• Not a distance education type of course! It’s not just about passing the course but LEARNING!
Best way to approach this course
• Lecture + Tutorial (3 levels of learning : PRE, During, Post)
• McGrawHill Connect questions – FYI:the link disappears each Sunday
11:59pm) – this is optional!
• Ask Questions : Moodle discussion forum
• Address your question correctly (lecture content? Tutorial matter? Related
assessment? Ilab?)
• Answer should be given within 24 hours, maximum 48 hours. Weekend no reply!
Expectation and requirement of
FINS2618 T2 2023
QUESTIONS???
SLIDO Questions
SLIDO: To do and Not To Do
INCORRECT USER NAME – NO MARKS for that week!
5 Sector Economy
Economics 101
Introduction to Finance
Viney Chapter 1
Learning
Objectives
Learning
Objectives –
chapter
1 1
Chapter
Explain
Explain the functions of a financial system
Categorise Categorise the main types of financial institutions
Describe
Describe the main classes of financial instruments
issued in a financial system
Distinguish between various types of financial markets
Distinguish according to function
Financial
System
LO1: The function
of financial
System
• The financial system is part of a country’s economic system
• A financial system comprises a range of financial institutions, financial instruments and
financial markets which interact to facilitate the flow of funds between deficit and
surplus unit, under the supervision of the central bank and the prudential supervisor
• Financial institutions permit the flow of funds between borrowers (deficit unit) and
lenders (surplus unit) by facilitating financial transactions
Financial markets and flow of funds relationship
Finance and
the real
economy
• What is Finance? Why is it so
important?
Finance is essentially
the study of how we
allocate capital in an
economy toward its
most productive use.
1. Financial
Financial
Institutions
LO2:
Institutions
• Financial institutions are classified into five categories based on the differences between
the institutions’ sources and uses of funds
1.Depository financial institutions
2.Investment banks and merchant banks
3.Contractual savings institutions
4.Finance companies
5.Unit trust
1a:Depository financial institutions
Commercial banks
obtains a large proportion of their funds from deposits lodged by savers.
A principal business of these institutions is the provision of loans to borrowers in the
household and business sectors
E.g.
1b: Investment banks
 Major function is to provide off-balance sheet advisory services to support their corporate and
government clients
 Off balance sheet business includes advising clients on mergers and acquisitions, portfolio
restructuring, underwriting new debt and equity issues (IPO/SEO) and risk management
 These institutions may provide some loans to clients but are more likely to advise and assist a
client to raise funds directly in the capital markets
1c: Contractual savings institutions
Financial institutions such as life insurance offices, general insurers and
superannuation funds
Their liabilities are mainly contracts which specify that, in return for periodic
payments to the institution, the institution will make specified payouts to the
holder of the contract if and when the event specified in the contract occurs.
The periodic cash receipts received by these institution provide them with a
large pool of funds that they invest.
1d: Finance companies
These institutions raise funds by issuing financial securities
such as commercial paper, medium term notes and bonds
in the money markets and the capital markets
They use those funds to make loans and provide lease
finance to their customers in the household sector and the
business sector
1e: Unit trusts
 A unit trust is formed under a trust deed and is controlled and managed by
a trustee or responsible entity
 Unit trusts attract funds by inviting the public to purchase units in a trust.
 The funds obtained from the sale of units are pooled and then invested by
funds managers in asset classes specified in the trust deed.
 There is a wide range of unit trusts, including equity trusts, property trusts,
fixed interest trusts and mortgage trust.
Financial Institutions
2. Financial Instruments/Assets
• Assets can be divided into:
1. Real assets-Assets that can be put to productive use to generate
a return
2. Financial assets-Assets that represent a claim to a series of cash
flows against an economic unit.There is an entitlement to future
cashflows
2. Difference between Financial Asset vs Financial Security
LO3: Financial
Assets
A financial
asset is
defined as
entitlement
to future
cashflows
Know the
difference
financial asset
vs financial
security
A financial security is a financial
asset that can be traded in
secondary market.
2. Attributes of financial assets
• Return-Total financial compensation received from an investment
expressed as a percentage of the amount invested
• Risk -Probability that actual return on an investment will vary from
the expected return
• Liquidity-Ability to sell an asset within reasonable time at current
market prices and for reasonable transaction costs
• Time pattern of Cash flows-When the expected cash flows from a
financial asset are to be received by the investor or lender
2. Different Types of Financial Instruments
• Equity
• Ownership interest in an asset
• Residual claim on earnings and assets
• Dividend
• liquidation
• Debt
• Contractual claim to:
• periodic interest payments
• repayment of principal.
• Ranks ahead of equity
• Derivatives
• A synthetic security providing specific future rights that derives its price from
another asset
• Used mainly to manage price risk exposure and to speculate
• Hybrid
• Features both equity & debt characteristics
What is a
market?
Why do we
need it?
SLIDO Questions
3. Markets
Matching principle
Primary vs secondary market transactions
LO4: Financial
Direct vs intermediated finance
markets
Money markets vs Capital markets
Wholesale vs Retail
Matching Principle
• Short-term assets should be funded with short-term (money market) liabilities;
e.g. seasonal inventory needs funded by overdraft.
Matching
•principle
Longer term assets should be funded with equity or longer term (capital market)
liabilities; e.g. equipment funded by bonds
• lack of adherence to this principle accentuated effects of frozen money markets
with the ‘sub-prime’ market collapse.
Primary vs Secondary market transactions
Primary Market
Secondary
Market
Direct Financing
Intermediated finance
• Intermediated financial flow markets
• A financing arrangement involving two separate contractual agreements whereby the saver
provides funds to an intermediary and the intermediary provides funding to the ultimate user
of the funds
(cont.)
Wholesale vs
retail markets
Wholesale
markets
• Direct financial flow transactions
between institutional investors
and borrowers
• Involves larger transactions
Retail
markets
• Transactions conducted primarily
with financial intermediaries by
the household and small- to
medium-sized business sectors
• Involves smaller transactions
Money
vs
Capital
markets
Money
markets
Wholesale markets
in which Short-term
securities are issued
Capital
markets
• Wholesale markets
in which Long-term
securities are issued
SLIDO Quiz