Chapter 1 - McGraw Hill Higher Education
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PowerPoint Slides to accompany Financial Institutions, Instruments and Markets Fourth Edition by Christopher Viney Designed and Written by Anthony Stanger School of Commerce The Flinders University of South Australia Copyright 2003 McGraw-Hill Australia Pty Ltd Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 1 Chapter 1 The Financial System Websites: http://www.rba.gov.au http://www.asx.com.au http://www.ft.com/asia/ Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 2 Learning Objectives • Explain the functions of a financial system • Describe the main classes of financial instruments issued in a financial system • Distinguish between various types of financial markets according to function • Discuss the flow of funds between savers and borrowers, including direct and intermediated finance Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 3 Learning Objectives (cont.) • Appreciate the influence of globalisation on financial markets • Categorise the main types of financial institutions • Understand the impact of a financial crisis on a financial system and a real economy Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 4 Chapter Organisation 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 5 1.1 Introduction • Money – Medium of exchange – Allows specialisation in production – Solves the divisibility problem, i.e. where medium of exchange does not represent equal value for the parties to the transaction – Facilitates saving – Store of wealth Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 6 1.1 Introduction (cont.) • Role of markets – Facilitate exchange by Bringing opposite parties together Establishing rates of exchange, i.e. prices • Surplus units – Savers of funds available for lending • Deficit units – Borrowers of funds for capital investment and consumption Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 7 1.1 Introduction (cont.) • Financial instrument – Issued by a party raising funds, acknowledging a financial commitment and entitling holder to specified future cash flows • Flow of funds – Movement of funds through the financial system between savers and borrowers giving rise to financial instruments Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 8 1.1 Introduction (cont.) • Financial system – Financial institutions, instruments and markets facilitating transactions for goods and services and financial transactions – Overcomes difficulty of Double coincidence of wants • Transaction between two parties meets their mutual needs Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 9 1.1 Introduction (cont.) Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 10 Chapter Organisation 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 11 1.2 Functions of the Financial System • Attributes of financial assets – Return or yield – 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 Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 12 1.2 Functions of the Financial System (cont.) • Liquidity – Ability to sell an asset within reasonable time at current market prices and for reasonable transaction costs • Time-pattern of the cash flows – When the expected cash flows from a financial asset are to be received by the investor or lender Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 13 1.2 Functions of the Financial System (cont.) • The financial system facilitates portfolio restructuring – The combination of assets and liabilities comprising the desired attributes of return, risk, liquidity and timing of cash flows Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 14 1.2 Functions of the Financial System (cont.) • An efficient financial system – Encourages savings – Savings flow to the most efficient users – Implements the monetary policy of governments by influencing interest rates – The combination of assets and liabilities comprising the desired attributes of return, risk, liquidity and timing of cash flows Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 15 Chapter Organisation 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 16 1.3 Financial Instruments • Equity – Ownership interest in an asset – Residual claim on earnings and assets – Dividend Liquidation Types Ordinary share Hybrid (or quasi-equity) security • Preference shares • Convertible notes Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 17 1.3 Financial Instruments (cont.) • Debt – Contractual claim to – – Periodic interest payments Repayment of principal Ranks ahead of equity Can be secured or unsecured Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 18 1.3 Financial Instruments (cont.) • Derivatives – A synthetic security providing specific future rights that derives its price from a Physical market commodity • Gold and oil Financial security • Interest rate-sensitive debt instruments, currencies and equities – Used mainly to manage price risk exposure, and to speculate Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 19 1.3 Financial Instruments (cont.) • Four basic derivative contracts – Futures (Chapter 18) – Forward (Chapter 18) – Option contract (Chapter 19) – Swap (Chapter 20) Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 20 Chapter Organisation 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 21 1.4 Financial Markets • Matching principle • Primary and secondary market transactions • Direct and intermediated financial flow markets • Wholesale and retail markets • Money markets • Capital markets Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 22 Matching principle • Short-term assets should be funded with short-term liabilities – Inventory funded by overdraft • Longer-term assets should be funded with equity or longer-term liabilities – Equipment funded by debentures Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 23 Primary and secondary market transactions • Primary market transaction – The issue of a new financial instrument to raise funds to purchase goods, services or assets by Businesses • Company shares or debentures Governments • Treasury notes or bonds Individuals • Mortgage Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 24 Primary and secondary market transactions (cont.) • Secondary market transaction – The buying and selling of existing financial instruments No direct impact on original issuer of security Transfer of ownership from one saver to another saver Provides liquidity which facilitates restructuring of portfolios of security owners Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 25 Direct and intermediated financial flow markets • Direct flow markets – Users of funds obtain finance directly from savers Advantages • Avoids costs of intermediation • Increases range of securities and markets Disadvantages • • • • Matching of preferences Liquidity and marketability of a security Search and transaction costs Assessment of risk, especially default risk Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 26 Direct and intermediated financial flow markets (cont.) Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 27 Direct and intermediated financial flow markets (cont.) • Intermediated flow markets – A financing arrangement involving two separate contractual agreements whereby saver provides funds to intermediary, and the intermediary provides funding to the ultimate user of funds – Advantages Asset transformation Maturity transformation Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 28 Direct and intermediated financial flow markets (cont.) – Advantages (cont.) Credit risk diversification and transformation Liquidity transformation Economies of scale • Sectorial flow of funds – The flow of funds between business, financial institutions, government and household sectors and the rest of the world – Influenced by fiscal and monetary policy Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 29 Direct and intermediated financial flow markets (cont.) Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 30 Wholesale and retail markets • Wholesale markets – Direct financial flow transactions between institutional investors and borrowers Involves large transactions • Retail markets – Transactions conducted primarily with financial intermediaries by the household and smallmedium business sectors Involves smaller transactions Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 31 Money markets • Wholesale markets in which short-term securities are issued and traded – Securities highly liquid – – Term to maturity of one year or less Highly standardised form Deep secondary market No specific infrastructure or trading place Enable participants to manage liquidity Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 32 Money markets (cont.) • Money market securities – Cash deposits (11 a.m. and 24-hour call) – Commercial bills – Treasury notes – Government bonds – Promissory notes – Intercompany loans – Interbank loans Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 33 Money markets (cont.) • Money market participants – Reserve Bank Financial system liquidity Implementation of monetary policy Banks – Finance companies – Funds managers – Building societies – Credit unions – Companies – Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 34 Money markets (cont.) • Money market sub-markets – Intercompany market – Interbank market – Bills market – Commercial paper market – Negotiable certificates of deposit (CDs) market Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 35 Capital markets • Markets in which longer-term securities are issued and traded Equity markets – Corporate debt markets – Government debt markets – Foreign exchange markets – Derivatives markets – • Term to maturity of more than one year Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 36 Chapter Organisation 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 37 1.5 Impact of Globalisation • Globalisation of financial markets – Refers to the interdependence of national financial systems – Global standardisation of financial instruments – Facilitates the movement of funds between savers and borrowers in different countries Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 38 Chapter Organisation 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 39 1.6 Financial Institutions • Financial institutions permit the flow of funds between borrowers and lenders by facilitating financial transactions • Institutions may be categorised by differences in the sources and uses of funds Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 40 1.6 Financial Institutions (cont.) • Categories of financial institutions – Depository financial institutions – Investment banks and merchant banks (money market corporations) – Contractual savings institutions – Finance companies – Unit trusts Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 41 Categories of financial institutions Depository financial institutions • Attract savings from depositors and investors to provide loan facilities to borrowers – Commercial banks – Building societies – Credit unions Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 42 Categories of financial institutions (cont.) Investment banks and merchant banks (money market corporations) • Mainly provide off-balance-sheet (OBS) transactions to corporations and government – Advice on mergers and acquisitions, portfolio restructuring, finance and risk management • Provide some funding Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 43 Categories of financial institutions (cont.) Contractual savings institutions • The liabilities of these institutions are contracts that specify, in return for periodic payments to the institution, the institution will make payments to the contract holders if a specified event occurs • Funds are then used to purchase both primary and secondary market securities – – Life and general insurance companies Superannuation funds Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 44 Categories of financial institutions (cont.) Finance companies • Funds are raised by issuing financial securities direct into money markets and capital markets • Funds are used to make loans to ultimate borrowers Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 45 Categories of financial institutions (cont) Unit trusts • Investors purchase units in the trust • Trust manager invests funds in a range of investments specified by trust deed • Types of unit trusts Cash management trusts – Equity trusts – Property trusts – Mortgage trusts – Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 46 1.6 Financial Institutions (cont.) • Assets of financial institutions Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 47 Chapter Organisation 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Functions of the Financial System Financial Instruments Financial Markets Impact of Globalisation Financial Institutions Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 48 1.7 Summary • The financial system is composed of financial institutions, instruments and markets facilitating transactions for goods and services and financial transactions • Financial instruments may be equity, debt or hybrid Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 49 1.7 Summary (cont.) • Financial markets may be classified according to Primary and secondary transactions – Direct and intermediated flows – Wholesale and retail markets – Money markets and capital markets – Financial institutions – Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 50
