Financial non-depository institutions are financial intermediaries that pool payments from individuals in the form of premiums, contributions, or property used as collateral for pawnshop loans. They include pension funds, securities firms, government agencies, finance companies, insurers, and smaller operations like pawnshops. Insurers may specialize in life insurance, annuities, or other types of coverage. Mutual funds pool investor money to purchase securities, while brokerages assist with stock and investment purchases either online or through branches.
This document provides an overview of the key components of the financial system. It discusses the six main parts of the financial system: money, financial instruments, financial markets, financial institutions, regulatory agencies, and central banks. It then describes the core principles of money and banking. Finally, it outlines the structure of the financial industry, including depository institutions like banks, and non-depository institutions like insurance companies, investment banks, and mutual funds.
The document provides an introduction to the financial system, outlining its six main parts: money, financial instruments, financial markets, financial institutions, regulatory agencies, and central banks. It describes how each part functions within the system. It also outlines five core principles that underlie the financial system: time has value, risk requires compensation, information is the basis for decisions, markets determine prices and allocate resources, and stability improves welfare. Finally, it lists some key functions performed by the global financial system, including providing savings mechanisms, storing wealth, providing liquidity, enabling credit, facilitating payments, managing risks, and allowing governments to influence the economy.
The document provides an overview of financial systems and markets. It defines key terms like financial system, formal and informal financial sectors, components of a formal financial system including financial institutions, markets, instruments, services and currency. It describes the functions of a financial system like payments, savings, liquidity, risk management and government policy. It also discusses elements of a financial system such as lenders and borrowers, financial intermediaries, instruments, markets, money creation and price discovery. Finally, it provides details about the structure and classification of the Indian financial system.
The document discusses the components of the Indian financial system. It identifies the main components as financial institutions, financial assets, financial services, financial markets, and money. Financial institutions connect borrowers and investors by facilitating transactions using various financial instruments. Financial assets include securities like bonds, debentures, and shares that are traded. Financial services help with activities like borrowing, lending, payments, and risk management. Financial markets allow for the exchange of financial assets without direct money transfers. Money acts as a medium of exchange and store of value within the financial system.
This document provides an overview of financial markets and institutions. It begins by defining key terms like financial systems and markets. It then describes different types of financial markets including capital markets, money markets, commodity markets, and more. It also outlines various financial institutions like commercial banks, investment banks, insurance companies, and others. The document discusses how funds flow through the financial system directly and indirectly. It also touches on important concepts like asymmetric information, free rider problems, and how financial development relates to economic growth. Finally, it introduces Minsky's financial instability hypothesis and how periods of stability can lead to increased risk-taking and potential financial crises.
A financial system consists of financial institutions, markets, instruments, and services that facilitate the transfer of funds between savers and investors. It plays a key role in allocating resources in the economy by channeling funds from savers to borrowers. A sound financial system is essential for capital formation and steady economic growth by mobilizing savings and efficiently directing those savings towards productive investments. It links those who have capital but do not want to engage directly in business with those who need capital to start or expand their business.
The document provides an overview of the financial system including why it is studied, key components like financial markets and institutions, and economic analysis of its structure and regulation. It describes financial markets and the functions of intermediaries like banks. It also analyzes how adverse selection, moral hazard, and government safety nets influence financial structure and regulation. Capital requirements, supervision, and both micro and macroprudential regulation help address these issues.
This document provides an overview of the key components of the financial system. It discusses the six main parts of the financial system: money, financial instruments, financial markets, financial institutions, regulatory agencies, and central banks. It then describes the core principles of money and banking. Finally, it outlines the structure of the financial industry, including depository institutions like banks, and non-depository institutions like insurance companies, investment banks, and mutual funds.
The document provides an introduction to the financial system, outlining its six main parts: money, financial instruments, financial markets, financial institutions, regulatory agencies, and central banks. It describes how each part functions within the system. It also outlines five core principles that underlie the financial system: time has value, risk requires compensation, information is the basis for decisions, markets determine prices and allocate resources, and stability improves welfare. Finally, it lists some key functions performed by the global financial system, including providing savings mechanisms, storing wealth, providing liquidity, enabling credit, facilitating payments, managing risks, and allowing governments to influence the economy.
The document provides an overview of financial systems and markets. It defines key terms like financial system, formal and informal financial sectors, components of a formal financial system including financial institutions, markets, instruments, services and currency. It describes the functions of a financial system like payments, savings, liquidity, risk management and government policy. It also discusses elements of a financial system such as lenders and borrowers, financial intermediaries, instruments, markets, money creation and price discovery. Finally, it provides details about the structure and classification of the Indian financial system.
The document discusses the components of the Indian financial system. It identifies the main components as financial institutions, financial assets, financial services, financial markets, and money. Financial institutions connect borrowers and investors by facilitating transactions using various financial instruments. Financial assets include securities like bonds, debentures, and shares that are traded. Financial services help with activities like borrowing, lending, payments, and risk management. Financial markets allow for the exchange of financial assets without direct money transfers. Money acts as a medium of exchange and store of value within the financial system.
This document provides an overview of financial markets and institutions. It begins by defining key terms like financial systems and markets. It then describes different types of financial markets including capital markets, money markets, commodity markets, and more. It also outlines various financial institutions like commercial banks, investment banks, insurance companies, and others. The document discusses how funds flow through the financial system directly and indirectly. It also touches on important concepts like asymmetric information, free rider problems, and how financial development relates to economic growth. Finally, it introduces Minsky's financial instability hypothesis and how periods of stability can lead to increased risk-taking and potential financial crises.
A financial system consists of financial institutions, markets, instruments, and services that facilitate the transfer of funds between savers and investors. It plays a key role in allocating resources in the economy by channeling funds from savers to borrowers. A sound financial system is essential for capital formation and steady economic growth by mobilizing savings and efficiently directing those savings towards productive investments. It links those who have capital but do not want to engage directly in business with those who need capital to start or expand their business.
The document provides an overview of the financial system including why it is studied, key components like financial markets and institutions, and economic analysis of its structure and regulation. It describes financial markets and the functions of intermediaries like banks. It also analyzes how adverse selection, moral hazard, and government safety nets influence financial structure and regulation. Capital requirements, supervision, and both micro and macroprudential regulation help address these issues.
This document defines key finance terms and provides an overview of financial institutions, markets, instruments, and services. It discusses the classification of public and private finance as well as external and internal finance sources. Financial institutions are categorized as banking and non-banking, and financial markets are classified as primary/secondary and money/capital markets. The roles of financial intermediaries in managing assets and liabilities are also summarized, in addition to defining financial innovation.
1. Financial markets allow individuals and organizations to exchange financial assets and funds through intermediation. Money markets deal in short term debt up to 1 year, while capital markets trade longer term equity and debt.
2. Financial institutions serve as intermediaries in these markets since they are imperfect. Major institutions include commercial banks, savings institutions, credit unions, finance companies, mutual funds, securities firms, hedge funds, insurance companies and pension funds.
3. Interest rates are determined by the interaction of supply and demand in the loanable funds market. Factors like expected inflation, economic growth, and money supply influence rates by shifting supply and demand curves. The term structure of interest rates shows the relationship between yields of different term securities.
Financial Institution Chapter one PPT slide.pptxetebarkhmichale
KCB MSME Loan Offer
Our KCB MSME Loan offer has been designed for our business customers in response to the current harsh economic times. We’re providing a financial cushion to help maintain liquidity for your working capital or to enable you to acquire trading assets.
Benefits
What we need from you
• Be an active KCB account holder for at least 6 months
• Business account annual turnover of between KES 500,000 to KES 100 Million.
• Must be a registered business (MSME) in Kenya
• Provide Business registration certificate
• Provide a valid business permit or trade license from the county government.
• Have a tax compliance certificate
• Borrower must have been in operation (viably) for at least 2 years.
• Must be a credit worthy MSME.
• Have a positive CRB listing
• Be compliant with the bank’s Environmental Risk Management Guidelines where applicable
Visit your nearest branch or contact your relationship manager to apply.
*Terms and Conditions Apply
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Overdraft Facilities
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SME Term Loans
Choose between a secured or unsecured loan up to Kes. 250 Million, payable over flexible repaymen....
Retailer Finance
Need to stock up your store? With Retailer Finance, we support your business by financing you to purchase business inventory from your preferred distributor. With no collateral required, you can expand your business and see rising profit margins.
Benefits
What is required
• Existing one-year trading relationship between retailer and distributor
• Detailed profile write-up on the distributor
• Distributor’s 3 years’ audited accounts
• Over 3 months into current year’s management accounts
• CRB reports for the business and the directors
Rates & Fees
• Competitive rates
• Maximum loan limit per retailer – Kes 500,000 per distributor
• Maximum loan limit per retailer – Kes 1,000,000 for all distributors
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The document provides an overview of financial systems and their role in the economy. It discusses that financial systems channel funds from lenders to borrowers, create liquidity and money, provide payment mechanisms and financial services. Financial systems impact economic growth through capital accumulation and technological innovation by lowering costs and allowing risk diversification. Financial markets are crucial as they transfer funds from savers to borrowers, promoting economic efficiency.
The document provides an overview of financial markets, including:
1) It defines financial markets and discusses their key features like liquidity, efficiency, and risk management.
2) It explains the importance of financial markets in facilitating capital formation, economic growth, and price discovery.
3) It describes the classification of financial markets based on maturity, seasoning, timing and delivery, and organizational structure. This includes distinctions between money markets and capital markets.
Indian financial system bfs sybms_financeYuti Nandu
The document outlines a syllabus covering basics of financial services across 4 units. Unit 1 covers the financial system, its components, markets, products and regulatory bodies. Unit 2 discusses commercial banks, the Reserve Bank of India, and development banks. Unit 3 covers the concept of insurance and different insurance products. Unit 4 explains mutual funds, their growth in India, and how they function.
The document provides an introduction to financial systems, including definitions, key components, and functions. It discusses that a financial system consists of institutions, markets, instruments, and services that facilitate the transfer of funds. The main components are financial institutions like banks, markets where assets are traded, various financial services, and instruments/assets like stocks, bonds, and mutual funds. Financial systems play an important role in allocating resources and facilitating economic growth.
This document provides an overview of the Indian financial system. It discusses the basic elements of a well-functioning financial system including a strong legal environment, stable money, sound public finances, and financial institutions and markets. The three main parts of the Indian financial system are financial assets, financial institutions, and financial markets. Key financial institutions in India include banks, mutual funds, and insurance companies. Financial markets facilitate activities like mobilizing and allocating savings and monitoring corporate performance.
The document discusses the key components and functions of a financial system. It describes a financial system as a network that allows the exchange of funds between participants like lenders, borrowers, and investors. The main components include financial institutions, markets, instruments, services, and currency. Key functions of a financial system are to facilitate payments, savings, liquidity, risk management, and influence of government policies. Financial systems are important for economic development by channeling savings into investments.
Chapter 1 - Introduction to Finance.pdfPhanTunHng1
This document provides an outline and introduction to finance concepts from the textbook 'Finance' by Bodie and Merton. It defines finance as the study of allocating resources over time and outlines five core principles. It discusses the financial decisions households and firms must make regarding consumption, savings, investments, financing, and risk management. It also describes the global financial system, including the flow of funds from surplus spending units like households to deficit spending units like businesses through markets and financial intermediaries.
The document outlines various types of financial institutions, including commercial banks, central banks, investment banks, retail banks, and Islamic banks. It also covers non-banking financial institutions such as investment companies, insurance companies, mutual funds, venture capital firms, and peer-to-peer lending platforms. Each type of institution is defined by its functions in facilitating financial transactions and allocating capital, as well as its purpose in supporting economic activity, development, and inclusion.
Finance involves the management of money and funds. It includes activities like originating, marketing, and managing cash and other financial instruments. There are three main areas of finance: personal finance concerning individuals' finances, corporate finance concerning for-profit organizations' finances, and public finance concerning governments' financial affairs. Financial systems provide capital from investors to other individuals, firms, and governments through various financial instruments and markets.
The financial system plays a crucial role in economic development by facilitating the transfer of resources from savers to investors. It consists of financial institutions, financial markets, financial instruments, and financial services. Recent developments include the establishment of regulatory bodies like SEBI and reforms in the capital market, money market, and commercial banking sector. Capital market reforms involve the growth of stock exchanges, mutual funds, and electronic trading. Money market reforms include deregulating interest rates and developing new market instruments. Reforms in commercial banks feature reduced reserve requirements, interest rate deregulation, and increased operational autonomy.
Financial Management
http://www.wileybusinessupdates.com
Chapter
17
1
Define the role of the financial manager.
Describe financial planning.
Outline how organizations manage their assets.
Discuss the sources of funds and capital structure.
1
Learning Objectives
Identify short-term funding options.
Discuss sources of long-term financing.
Describe mergers, acquisitions, buyouts, and divestitures.
2
3
4
5
6
7
2
Finance– planning, obtaining, and managing the company’s funds in order to accomplish its objectives
Maximizing overall worth
Meeting expenses
Investing in assets
Increasing profits to shareholders
The Business Function of Finance
3
Implement the firm’s financial plan
Determine the most appropriate source of funds
Many CFOs are members of the board of directors
The Role of the Finance Manager
4
The process of maximizing the wealth of the firm’s shareholders by striking the optimal balance between risk and return.
Risk-Return Tradeoff
5
Financial Plan– the inflows and outflows and sources of funds.
Financial plans are built by answering the following questions:
What funds will the firm require during the planning period?
When will it need additional funds?
Where will it obtain the necessary funds?
Financial plans are based on the forecasts of costs and expected sales activities for a given period.
Financial Planning
6
Sound financial management requires assets to be managed and acquired.
What a firm owns
Use of funds
Managing Assets
7
Cash
Marketable Securities
Accounts Receivable
Inventory
Short-Term Assets
8
Long-lived assets
Produce economic benefit for more than one year
Substantial investments
Capital Investment Analysis
Expansion: new assets
Replacement: upgrading assets
Capital Investment Analysis
9
Debt Capital– funds obtained through borrowing.
Equity Capital– investment in the firm in exchange for ownership.
Sources of Funds and Capital Structure
10
Goal: increasing the rate of return on funds invested by borrowing funds
Leverage and Capital Structure
11
Short-term funds
Current liabilities
Less expensive
Volatile interest rates
Long-term funds
Long-term debt and equity
Used for long-term assets
Mixing Short and Long-Term Funds
12
Dividends are cash payments to shareholders.
Highest dividend yielding stocks
Financial managers must make decisions regarding their dividend policy.
Should we pay a dividend?
When should it be paid?
Dividend Policy
13
Trade Credit
Short-term Loans
Commercial Paper
Short-Term Funding Options
14
Public Sale of Stocks and Bonds
Private Placements
Private Equity Funds
Hedge Funds
Sources of Long-Term Financing
15
Financial managers evaluate mergers, acquisitions, and other opportunities.
Leveraged buyouts
Divestiture
Sell-off/Spin-off
Mergers, Acquisitions, Buyouts, and Divestitures
...
The document discusses the key components and participants in a financial system. It describes how a financial system bridges the gap between those who demand capital (borrowers) and those who have surplus capital (savers). The main participants are identified as households, non-financial corporations, governments, and financial corporations. Households and financial corporations are typically net savers, while non-financial corporations and governments are usually net borrowers. The financial system facilitates capital transfers between these groups through various financial institutions, services, instruments and markets. It also discusses the importance of safety, security and transparency in a financial system.
The document provides an overview of the international financial system (IFS). It defines the IFS as the global system consisting of financial institutions, regulators, and other players that operate internationally. The key components of the IFS include money, banking/financial institutions, financial instruments, financial markets, and central banks. It also distinguishes the IFS from the international monetary system (IMS) and outlines some of the major types of financial markets and terms related to the IFS.
The document provides an overview of the Indian financial system. It discusses the key components of the financial system including financial assets, institutions, markets, and their various functions. It describes the major financial institutions in India like banks, mutual funds, insurance companies. It also explains various financial instruments in the money market and capital market that enable raising and deployment of funds. The document presents diagrams to illustrate the structure and flow of funds within the Indian financial system.
Week-1 Into to Money and Bankingand Basic Overview of U.S. Fin.docxalanfhall8953
Week-1 Into to Money and Banking
and Basic Overview of U.S. Financial System
Money and Banking Econ 311
Instructor: Thomas L. Thomas
Financial markets transfer funds from people who have excess available funds to people who have a shortage.
They promote grater economic efficiency by channeling funds from people who do not have a productive use for them to those who do.
Well functioning financial markets are a key factor in producing economic growth, where as, poor functioning financial markets are a major reason many countries in the world remain poor.
Financial Markets
A security or financial instrument is a claim on the issuer’s future income or assets.
A bond is a debt security (IOU) that promises to make payments periodically for a specified period of time.
The bond market is especially important economic activity because it enables businesses and the government to borrow and finance their activities and because it is where interest rates are determined.
An interest rate is the cost of borrowing money or the price to rent (use someone else’s) funds.
Because different interest rates tend to move in unison, economist frequently lump interest rates together and refer to the “interest rate”.
Interest rates are important on a number of levels:
High interest rates retard borrowing
High interest rates induce saving.
Lower interest rates induce borrowing
Lower Interest rates retard saving
Information Asymmetry and Information costs
Why Financial Intermediaries
In the neo-classical world economists have argued financial intermediaries are not necessary. Savers (investors) could manage their risks through diversification.
The logic rests on the perfect market assumption – that is investors can always through their own borrowing and lending compose their portfolios as they see fit, without costs. In such a world there are no bankruptcy costs.
In such a world if taken to the extreme, perfect and complete markets imply that there is no need for financial institutions to intermediate in the financial (capital markets) as every investor (saver) has complete information and can contract with the market at the same terms as banks. E.g. Information Asymmetry
Why Financial Intermediaries Bonds
A common stock (usually called stock) represents a share of ownership in a corporation.
It is usually a security that is a claim on the earnings and assets of the corporation.
Issuing stock and selling it to the public (called a public offering) is a way for corporations to raise the funds to finance their activities.
The stock market is the most widely followed financial market in almost every country that has one – that is why it is generally called the market – here “Wall Street.”
The stock market is also an important factor in business investment decisions, because the price of shares affects the amount of funds that can be raised by selling newly issued stock to finance investment spending. (Note impact examples..
The document provides an introduction to the Indian financial system, which includes both formal/organized and informal/unorganized components. It describes the various subsystems that make up the formal financial system, including financial institutions, markets, instruments, and services. It also discusses the roles and interactions of different elements like banks, non-banking institutions, money markets, capital markets, primary markets, and secondary markets.
Ellen Burstyn: From Detroit Dreamer to Hollywood Legend | CIO Women MagazineCIOWomenMagazine
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IMPACT Silver is a pure silver zinc producer with over $260 million in revenue since 2008 and a large 100% owned 210km Mexico land package - 2024 catalysts includes new 14% grade zinc Plomosas mine and 20,000m of fully funded exploration drilling.
This document defines key finance terms and provides an overview of financial institutions, markets, instruments, and services. It discusses the classification of public and private finance as well as external and internal finance sources. Financial institutions are categorized as banking and non-banking, and financial markets are classified as primary/secondary and money/capital markets. The roles of financial intermediaries in managing assets and liabilities are also summarized, in addition to defining financial innovation.
1. Financial markets allow individuals and organizations to exchange financial assets and funds through intermediation. Money markets deal in short term debt up to 1 year, while capital markets trade longer term equity and debt.
2. Financial institutions serve as intermediaries in these markets since they are imperfect. Major institutions include commercial banks, savings institutions, credit unions, finance companies, mutual funds, securities firms, hedge funds, insurance companies and pension funds.
3. Interest rates are determined by the interaction of supply and demand in the loanable funds market. Factors like expected inflation, economic growth, and money supply influence rates by shifting supply and demand curves. The term structure of interest rates shows the relationship between yields of different term securities.
Financial Institution Chapter one PPT slide.pptxetebarkhmichale
KCB MSME Loan Offer
Our KCB MSME Loan offer has been designed for our business customers in response to the current harsh economic times. We’re providing a financial cushion to help maintain liquidity for your working capital or to enable you to acquire trading assets.
Benefits
What we need from you
• Be an active KCB account holder for at least 6 months
• Business account annual turnover of between KES 500,000 to KES 100 Million.
• Must be a registered business (MSME) in Kenya
• Provide Business registration certificate
• Provide a valid business permit or trade license from the county government.
• Have a tax compliance certificate
• Borrower must have been in operation (viably) for at least 2 years.
• Must be a credit worthy MSME.
• Have a positive CRB listing
• Be compliant with the bank’s Environmental Risk Management Guidelines where applicable
Visit your nearest branch or contact your relationship manager to apply.
*Terms and Conditions Apply
What other customers also viewed
Telco Dealer Agents Loan
If you’re a Safaricom dealer or M-PESA agent, the Telco dealer credit facility is designed to h....
Overdraft Facilities
Whether you require temporary overdraft facilities for one-off situations or an annual facility f....
SME Term Loans
Choose between a secured or unsecured loan up to Kes. 250 Million, payable over flexible repaymen....
Retailer Finance
Need to stock up your store? With Retailer Finance, we support your business by financing you to purchase business inventory from your preferred distributor. With no collateral required, you can expand your business and see rising profit margins.
Benefits
What is required
• Existing one-year trading relationship between retailer and distributor
• Detailed profile write-up on the distributor
• Distributor’s 3 years’ audited accounts
• Over 3 months into current year’s management accounts
• CRB reports for the business and the directors
Rates & Fees
• Competitive rates
• Maximum loan limit per retailer – Kes 500,000 per distributor
• Maximum loan limit per retailer – Kes 1,000,000 for all distributors
What other customers also viewed
Boresha Biashara Loan
Boresha Biashara Loan is specially designed for micro businesses, giving you access to financing,....
Bodaboda/ Tuktuk Loan
Let us offer you 70% financing and set you off on your Boda Boda or Tuk Tuk biashara. That is not....
Jaza Duka
If you’re looking to jaza your duka, then look no further. This initiative, in partnership with....
The document provides an overview of financial systems and their role in the economy. It discusses that financial systems channel funds from lenders to borrowers, create liquidity and money, provide payment mechanisms and financial services. Financial systems impact economic growth through capital accumulation and technological innovation by lowering costs and allowing risk diversification. Financial markets are crucial as they transfer funds from savers to borrowers, promoting economic efficiency.
The document provides an overview of financial markets, including:
1) It defines financial markets and discusses their key features like liquidity, efficiency, and risk management.
2) It explains the importance of financial markets in facilitating capital formation, economic growth, and price discovery.
3) It describes the classification of financial markets based on maturity, seasoning, timing and delivery, and organizational structure. This includes distinctions between money markets and capital markets.
Indian financial system bfs sybms_financeYuti Nandu
The document outlines a syllabus covering basics of financial services across 4 units. Unit 1 covers the financial system, its components, markets, products and regulatory bodies. Unit 2 discusses commercial banks, the Reserve Bank of India, and development banks. Unit 3 covers the concept of insurance and different insurance products. Unit 4 explains mutual funds, their growth in India, and how they function.
The document provides an introduction to financial systems, including definitions, key components, and functions. It discusses that a financial system consists of institutions, markets, instruments, and services that facilitate the transfer of funds. The main components are financial institutions like banks, markets where assets are traded, various financial services, and instruments/assets like stocks, bonds, and mutual funds. Financial systems play an important role in allocating resources and facilitating economic growth.
This document provides an overview of the Indian financial system. It discusses the basic elements of a well-functioning financial system including a strong legal environment, stable money, sound public finances, and financial institutions and markets. The three main parts of the Indian financial system are financial assets, financial institutions, and financial markets. Key financial institutions in India include banks, mutual funds, and insurance companies. Financial markets facilitate activities like mobilizing and allocating savings and monitoring corporate performance.
The document discusses the key components and functions of a financial system. It describes a financial system as a network that allows the exchange of funds between participants like lenders, borrowers, and investors. The main components include financial institutions, markets, instruments, services, and currency. Key functions of a financial system are to facilitate payments, savings, liquidity, risk management, and influence of government policies. Financial systems are important for economic development by channeling savings into investments.
Chapter 1 - Introduction to Finance.pdfPhanTunHng1
This document provides an outline and introduction to finance concepts from the textbook 'Finance' by Bodie and Merton. It defines finance as the study of allocating resources over time and outlines five core principles. It discusses the financial decisions households and firms must make regarding consumption, savings, investments, financing, and risk management. It also describes the global financial system, including the flow of funds from surplus spending units like households to deficit spending units like businesses through markets and financial intermediaries.
The document outlines various types of financial institutions, including commercial banks, central banks, investment banks, retail banks, and Islamic banks. It also covers non-banking financial institutions such as investment companies, insurance companies, mutual funds, venture capital firms, and peer-to-peer lending platforms. Each type of institution is defined by its functions in facilitating financial transactions and allocating capital, as well as its purpose in supporting economic activity, development, and inclusion.
Finance involves the management of money and funds. It includes activities like originating, marketing, and managing cash and other financial instruments. There are three main areas of finance: personal finance concerning individuals' finances, corporate finance concerning for-profit organizations' finances, and public finance concerning governments' financial affairs. Financial systems provide capital from investors to other individuals, firms, and governments through various financial instruments and markets.
The financial system plays a crucial role in economic development by facilitating the transfer of resources from savers to investors. It consists of financial institutions, financial markets, financial instruments, and financial services. Recent developments include the establishment of regulatory bodies like SEBI and reforms in the capital market, money market, and commercial banking sector. Capital market reforms involve the growth of stock exchanges, mutual funds, and electronic trading. Money market reforms include deregulating interest rates and developing new market instruments. Reforms in commercial banks feature reduced reserve requirements, interest rate deregulation, and increased operational autonomy.
Financial Management
http://www.wileybusinessupdates.com
Chapter
17
1
Define the role of the financial manager.
Describe financial planning.
Outline how organizations manage their assets.
Discuss the sources of funds and capital structure.
1
Learning Objectives
Identify short-term funding options.
Discuss sources of long-term financing.
Describe mergers, acquisitions, buyouts, and divestitures.
2
3
4
5
6
7
2
Finance– planning, obtaining, and managing the company’s funds in order to accomplish its objectives
Maximizing overall worth
Meeting expenses
Investing in assets
Increasing profits to shareholders
The Business Function of Finance
3
Implement the firm’s financial plan
Determine the most appropriate source of funds
Many CFOs are members of the board of directors
The Role of the Finance Manager
4
The process of maximizing the wealth of the firm’s shareholders by striking the optimal balance between risk and return.
Risk-Return Tradeoff
5
Financial Plan– the inflows and outflows and sources of funds.
Financial plans are built by answering the following questions:
What funds will the firm require during the planning period?
When will it need additional funds?
Where will it obtain the necessary funds?
Financial plans are based on the forecasts of costs and expected sales activities for a given period.
Financial Planning
6
Sound financial management requires assets to be managed and acquired.
What a firm owns
Use of funds
Managing Assets
7
Cash
Marketable Securities
Accounts Receivable
Inventory
Short-Term Assets
8
Long-lived assets
Produce economic benefit for more than one year
Substantial investments
Capital Investment Analysis
Expansion: new assets
Replacement: upgrading assets
Capital Investment Analysis
9
Debt Capital– funds obtained through borrowing.
Equity Capital– investment in the firm in exchange for ownership.
Sources of Funds and Capital Structure
10
Goal: increasing the rate of return on funds invested by borrowing funds
Leverage and Capital Structure
11
Short-term funds
Current liabilities
Less expensive
Volatile interest rates
Long-term funds
Long-term debt and equity
Used for long-term assets
Mixing Short and Long-Term Funds
12
Dividends are cash payments to shareholders.
Highest dividend yielding stocks
Financial managers must make decisions regarding their dividend policy.
Should we pay a dividend?
When should it be paid?
Dividend Policy
13
Trade Credit
Short-term Loans
Commercial Paper
Short-Term Funding Options
14
Public Sale of Stocks and Bonds
Private Placements
Private Equity Funds
Hedge Funds
Sources of Long-Term Financing
15
Financial managers evaluate mergers, acquisitions, and other opportunities.
Leveraged buyouts
Divestiture
Sell-off/Spin-off
Mergers, Acquisitions, Buyouts, and Divestitures
...
The document discusses the key components and participants in a financial system. It describes how a financial system bridges the gap between those who demand capital (borrowers) and those who have surplus capital (savers). The main participants are identified as households, non-financial corporations, governments, and financial corporations. Households and financial corporations are typically net savers, while non-financial corporations and governments are usually net borrowers. The financial system facilitates capital transfers between these groups through various financial institutions, services, instruments and markets. It also discusses the importance of safety, security and transparency in a financial system.
The document provides an overview of the international financial system (IFS). It defines the IFS as the global system consisting of financial institutions, regulators, and other players that operate internationally. The key components of the IFS include money, banking/financial institutions, financial instruments, financial markets, and central banks. It also distinguishes the IFS from the international monetary system (IMS) and outlines some of the major types of financial markets and terms related to the IFS.
The document provides an overview of the Indian financial system. It discusses the key components of the financial system including financial assets, institutions, markets, and their various functions. It describes the major financial institutions in India like banks, mutual funds, insurance companies. It also explains various financial instruments in the money market and capital market that enable raising and deployment of funds. The document presents diagrams to illustrate the structure and flow of funds within the Indian financial system.
Week-1 Into to Money and Bankingand Basic Overview of U.S. Fin.docxalanfhall8953
Week-1 Into to Money and Banking
and Basic Overview of U.S. Financial System
Money and Banking Econ 311
Instructor: Thomas L. Thomas
Financial markets transfer funds from people who have excess available funds to people who have a shortage.
They promote grater economic efficiency by channeling funds from people who do not have a productive use for them to those who do.
Well functioning financial markets are a key factor in producing economic growth, where as, poor functioning financial markets are a major reason many countries in the world remain poor.
Financial Markets
A security or financial instrument is a claim on the issuer’s future income or assets.
A bond is a debt security (IOU) that promises to make payments periodically for a specified period of time.
The bond market is especially important economic activity because it enables businesses and the government to borrow and finance their activities and because it is where interest rates are determined.
An interest rate is the cost of borrowing money or the price to rent (use someone else’s) funds.
Because different interest rates tend to move in unison, economist frequently lump interest rates together and refer to the “interest rate”.
Interest rates are important on a number of levels:
High interest rates retard borrowing
High interest rates induce saving.
Lower interest rates induce borrowing
Lower Interest rates retard saving
Information Asymmetry and Information costs
Why Financial Intermediaries
In the neo-classical world economists have argued financial intermediaries are not necessary. Savers (investors) could manage their risks through diversification.
The logic rests on the perfect market assumption – that is investors can always through their own borrowing and lending compose their portfolios as they see fit, without costs. In such a world there are no bankruptcy costs.
In such a world if taken to the extreme, perfect and complete markets imply that there is no need for financial institutions to intermediate in the financial (capital markets) as every investor (saver) has complete information and can contract with the market at the same terms as banks. E.g. Information Asymmetry
Why Financial Intermediaries Bonds
A common stock (usually called stock) represents a share of ownership in a corporation.
It is usually a security that is a claim on the earnings and assets of the corporation.
Issuing stock and selling it to the public (called a public offering) is a way for corporations to raise the funds to finance their activities.
The stock market is the most widely followed financial market in almost every country that has one – that is why it is generally called the market – here “Wall Street.”
The stock market is also an important factor in business investment decisions, because the price of shares affects the amount of funds that can be raised by selling newly issued stock to finance investment spending. (Note impact examples..
The document provides an introduction to the Indian financial system, which includes both formal/organized and informal/unorganized components. It describes the various subsystems that make up the formal financial system, including financial institutions, markets, instruments, and services. It also discusses the roles and interactions of different elements like banks, non-banking institutions, money markets, capital markets, primary markets, and secondary markets.
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2. 1-2
Six Parts of the Financial
System
1. Money
To pay for purchases and store wealth.
2. Financial Instruments
To transfer resources from savers to investors and to transfer
risk to those best equipped to bear it.
3. Financial Markets
To buy and sell financial instruments.
4. Financial Institutions
To provide access to financial markets, collect information &
provide services.
5. Regulatory Agencies
To provide oversight for financial system.
6. Central Banks
To monitor financial Institutions and stabilize the economy.
3. 1-3
Six Parts of the Financial
System
1. Money
To pay for purchases and store wealth.
2. Financial Instruments
To transfer resources from savers to investors and to transfer
risk to those best equipped to bear it.
3. Financial Markets
To buy and sell financial instruments.
4. Financial Institutions
To provide access to financial markets, collect information &
provide services.
5. Regulatory Agencies
To provide oversight for financial system.
6. Central Banks
To monitor financial Institutions and stabilize the economy.
4. 1-4
Six Parts of the Financial
System
1. Money
– Money has changed from gold/silver coins to
paper currency to electronic funds.
– Cash can be obtained from an ATM any
where in the world.
– Bills are paid and transactions are checked
online.
5. 1-5
Six Parts of the Financial
System
2. Financial instruments
– Buying and selling individual stocks used to
be only for the wealthy.
– Today we have mutual funds and other
stocks available through banks or online.
– Putting together a portfolio is open to
everyone.
6. 1-6
Six Parts of the Financial
System
3. Financial Markets
– Once financial markets were located in
coffeehouses and taverns.
– Then organized markets were created, like
the New York Stock Exchange.
– Now transactions are mostly handled by
electronic markets.
• This has reduced the cost of processing financial
transactions.
– There is a much broader array of financial
instruments available.
7. 1-7
Six Parts of the Financial
System
4. Financial Institutions
– Banks began as vaults, developed into
institutions, to today’s financial supermarket.
– Offer a huge assortment of financial
products and services.
8. 1-8
Six Parts of the Financial
System
5. Government regulatory agencies
– Government regulatory agencies were
introduced by federal government after
the Great Depression.
– Government regulatory agencies
provide wide-ranging financial
regulation - rules and supervision.
– Government regulatory agencies
examine the systems a bank uses to
manage its risk.
– The 2007-2009 financial crises has led
9. 1-9
Six Parts of the Financial
System
6. Central banks
– Central banks began as large private banks
to finance wars.
– Central banks control the availability of
money and credit to ensure low inflation,
high growth and stability of financial system.
– Today’s policymakers strive for transparency
in their operations.
10. 1-10
Five Core Principles of
Money and Banking
1. Time has value.
2. Risk requires compensation.
3. Information is the basis for
decisions.
4. Markets determine prices and
allocation resources.
5. Stability improves welfare.
11. 1-11
Five Core Principles of
Money and Banking
A. Core Principle 1: Time has value
– Time affects the value of financial
instruments.
– Interest is paid to compensate the
lenders for the time the borrowers have
their money.
– Chapter 4 develops an understanding
of interest rates and how to use them.
12. 1-12
Five Core Principles of
Money and Banking
B. Core Principle 2: Risk requires
compensation
– In a world of uncertainty, individuals
will accept risk only if they are
compensated.
– In the financial world, compensation
comes in the form of explicit payments:
the higher the risk the bigger the
payment.
13. 1-13
Five Core Principles of
Money and Banking
C. Core Principle 3: Information is the
basis for decisions
– The more important the decision, the
more information we gather.
– Collection and processing of
information is the foundation of the
financial system.
14. 1-14
Five Core Principles of
Money and Banking
D. Core Principle 4: Markets determine
prices and allocate resources.
– Markets are the core of the economic
system.
– Markets channel resources and
minimize the cost of gathering
information and making transactions.
– The better developed the financial
markets, the faster the country will
grow.
15. 1-15
Five Core Principles of
Money and Banking
E. Core Principle 5: Stability improves
welfare.
– A stable economy reduces risk and
improves everyone's welfare.
– Financial instability in the autumn of
2008 triggered the worse global
downturn since the Great Depression.
– A stable economy grows faster than an
unstable one.
16. 3-16
Financial Institutions
• Firms that provide access to the financial markets, both
– to savers who wish to purchase financial instruments directly and
– to borrowers who want to issue them.
• Also known as financial intermediaries.
– Examples: banks, insurance companies, securities firms, and
pension funds.
• Healthy financial institutions open the flow of resources,
increasing the system’s efficiency.
17. Financial institutions are businesses which
offer multiple services in banking and
finance. The services customers receive
may include savings and checking accounts,
loans, investments, and financial
counseling. The benefits consumers gain
by using financial institutions includes
convenience, cost savings, safety, and
security.
18. 3-18
The Role of Financial
Institutions
• To reduce transaction costs by
specializing in the issuance of
standardized securities.
• To reduce the information costs of
screening and monitoring borrowers.
– They curb asymmetries, helping resources
flow to most productive uses.
• To give savers ready access to their
funds.
19. 3-19
• Financial intermediation and leverage in the US
have shifted away from traditional banks and
toward other financial institutions less subject to
government regulations.
– Brokerages, insurers, hedge funds, etc.
• These have become known as shadow banks.
– Provide services that compete with banks but
do not accept deposits.
– Take on more risk than traditional banks and
are less transparent.
20. 3-20
• The rise of highly leveraged shadow
banks, combined with government
relaxation of rules for traditional banks,
permitted a rise of leverage in the financial
system as a whole.
– This made the financial system more
vulnerable to shocks.
• Rapid growth in some financial
instruments made it easier to conceal
leverage and risk-taking.
21. 3-21
• The financial crisis transformed shadow
banking.
– The largest US brokerages failed, merged, or
converted themselves into traditional banks to
gain access to funding.
• The crisis has encouraged the government
to scrutinize any financial institution that
could, by risk taking, pose a threat to the
financial system.
22. 3-22
The Structure of the Financial
Industry
• We can divide intermediaries into two
broad categories:
– Depository institutions,
• Take deposits and make loans
• What most people think of as banks
– Non-depository institutions.
• Include insurance companies, securities
firms, mutual fund companies, etc.
23. 3-23
The Structure of the Financial
Industry
1. Depository institutions take deposits and
make loans.
2. Insurance companies accept premiums,
which they invest, in return for promising
compensation to policy holders under
certain events.
3. Pension funds invest individual and
company contributions in stocks, bonds,
and real estate in order to provide
payments to retired workers.
24. 3-24
The Structure of the Financial
Industry
4. Securities firms include brokers, investment
banks, underwriters, and mutual fund
companies.
– Brokers and investment banks issue stocks
and bonds to corporate customers, trade
them, and advise customers.
– Mutual-fund companies pool the resources of
individuals and companies and invest them in
portfolios.
– Hedge funds do the same for small groups of
wealthy investors.
25. 3-25
The Structure of the Financial
Industry
5. Finance companies raise funds directly
in the financial markets in order to make
loans to individuals and firms.
– Finance companies tend to specialize in
particular types of loans, such as mortgage,
automobile, or business equipment.
26. 3-26
The Structure of the Financial
Industry
6. Government-sponsored enterprises are
federal credit agencies that provide loans
directly for farmers and home
mortgagors.
– Guarantee programs that insure loans made
by private lenders.
– Provides retirement income and medical
care through Social Security and Medicare.
27. Financial non depository
institutions
are financial intermediaries that do not
accept deposits but do pool the payments of
many people in the form of premiums or
contributions and either invest it or provide
credit to others.
Nondepository institutions include pension
funds, securities firms, government-
sponsored enterprises, and finance
companies.
28. Insurances Companies
• Insurance companies may be classified as
1. Life insurance companies, which
sell life insurance, annuities and pensions
products.
2. Non-life or general insurance
companies, which sell other types of
insurance.
29. • There are also smaller non depository
institutions, such as pawnshops that
make loans based on the value of property
such as jewelry, electronics, or other
valuable items.
• Pawnshops charge much higher fees than
other lending institutions.
30. Mutual Fund
An investment which is comprised of a
pool of funds collected from many
investors for the purpose of investing in
securities such as stocks, bonds, money
market securities and similar assets.
31. Brokerage Houses
• Stock brokers assist people in investing,
online only companies are called 'discount
brokerages', companies with a branch
presence are called 'full service
brokerages' or 'private client services.
32. Investment company
• Generally, an "investment company" is a
company (corporation, business trust,
partnership, or limited liability company)
that issues securities and is primarily
engaged in the business of investing in
securities.
34. Banks
• A bank is a commercial or state institution
that provides financial services, including
issuing money in various forms, receiving
deposits of money, lending money and
processing transactions and the creating
of credit.
35. 1. Central Bank
• A central bank, reserve bank or
monetary authority, is an entity
responsible for the monetary policy of its
country or of a group of member states,
such as the European Central Bank (ECB)
in the European Union, the Federal
Reserve System in the United States of
America,
36. 1. Central Bank
• Its primary responsibility is to maintain the
stability of the national currency and
money supply, but more active duties
include controlling subsidized-loan interest
rates, and acting as a “ lender of last
resort” to the banking sector during times
of financial crisis
37. 2. Commercial Banks
• A commercial bank accepts deposits from
customers and in turn makes loans, even
in excess of the deposits; a process
known as fractional-reserve banking.
Some banks (called Banks of issue) issue
banknotes as legal tender.
38. Size, structure and composition
• From1985 to 2016 the number of
banks decreased as a result of
merges and acquisitions.
43. 3. Different types of Banks
• Investment banks help companies and
governments and their agencies to raise
money by issuing and selling securities in
the primary market. They assist public and
private corporations in raising funds in the
capital markets (both equity and debt), as
well as in providing strategic advisory
services for mergers, acquisitions and
other types of financial transactions.
44. 4. Saving Banks
• A saving bank is a financial institution
whose primary purpose is accepting
savings deposits. It may also perform
some other functions.
45. 5. Micro Finance Banks
• For the purpose of poverty reduction
program, such kind of banks are working
in the different countries with the
contribution of UNO or World Bank.
46. 6. Islamic Banks
• Islamic banking refers to a system of
banking or banking activity that is
consistent with Islamic law (Sharia)
principles and guided by Islamic
economics. In particular, Islamic law
prohibits usury, the collection and payment
of interest, also commonly called riba in
Islamic discourse.
47. 9. Leasing Companies
• A lease or tenancy is the right to use or occupy
personal property or real property given by a
lessor to another person (usually called the
lessee or tenant) for a fixed or indefinite period
of time, whereby the lessee obtains exclusive
possession of the property in return for paying
the lessor a fixed or determinable consideration
(payment).
48. Federal Reserve System
• Established to supervise and regulate
member banks
• All national banks are required to join the
Federal Reserve System
• Banks that join the system are called
“member banks”
49. The functions of the Federal
Reserve
• Cashes checks for banks
• Makes loans to banks
• Wires money
• Collect checks for banks
• Supervise all national banks
• Supervises other members of the system
• Raises and lowers interest rates
• Attempts to control inflation
51. • A bank holds on to only a fraction of the
money that it takes in—an amount called
its reserves—and lends the rest out to
individuals, businesses, and governments.
In turn, borrowers put some of these funds
back into the banking system, where they
become available to other borrowers. The
money multiplier effect ensures that the
cycle expands
52.
53. Conclusion
• Financial institutions serve as financial
intermediaries between savers and
borrowers and direct the flow of funds
between the two groups.