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Money, foreign exchange, finance Q&A

 What is Finance?

Monetary resources comprising debt and ownership funds of the state, company, or person.

What is Financial System?

Deals with the financial transaction and the exchange of money between savers, investors, lenders, and borrowers. These systems are made of different intricate and complex models that link financial services for various stakeholders operating in the financial system like depositors, lenders, government, and others.

What are the functions of a financial system?

·   It provides payment system for the exchange of goods and services in the economy.

 

·   It provides the mechanism to pull the funds in terms of household savings for corporate investments.

 

·   It provides the financial capital for long-term capital formation for the government and business organizations.

 

·   It facilitates the investors and other market participants to liquidate their investment alternatives like stocks and bonds etc.

 

·   It provides the avenues for managing the risks faced by the market participants.

 

·   It takes care of both short-term and long-term needs of the market participants.

 

·   It supplies the required financial capital to government for public expenditure on the social welfare activity, infrastructure development etc.

 

·   It creates different investment opportunities for the investors to maximize their return.

 

How are the main types of financial institutions categorized? Describe each one.

Banking and non-banking: there is a difference between this because banks provide transaction services, it creates the deposit or the credit what others financial institutions cannot and, they can give more loan whatever deposits they have because they can create the money and the second ones are basically takes the money from us, but they are not able to create the money in the system.

Intermediaries and non-intermediaries: They lend money as well as mobilise savings and non-intermediary institutions do the loan business, but their resources are not directly obtained from the savers.

Money and Capital Markets: This conventional distinction is based on the differences in the period of maturity of financial assets issued in these markets, while the money markets deal in the short-term claims (with a period of maturity of one year or less), the capital markets do so in the long-term (maturity period above 1 year) claims.

Primary and Secondary Markets: primary markets deal in the new financial claims or new securities and secondary markets deal in securities already issued or existing or outstanding.

Which are the main classes of financial instruments issued in a financial system? Describe them in detail.

Cash Instruments: The values of cash instruments are directly influenced and determined by the markets. These can be securities that are easily transferable. Cash instruments may also be deposits and loans agreed upon by borrowers and lenders.

Derivative Instruments: The value and characteristics of derivative instruments are based on the vehicle’s underlying components, such as assets, interest rates, or indices.

 

What are the distinctions between various types of financial markets according to their function? Explain them.

There are different types of financial markets, and their characterization depends on the properties of the financial claims being traded and the needs of the different market participants.

Capital market: The capital market aids raising of capital on a long-term basis, generally over 1 year. It consists of a primary and a secondary market and can be divided into two main subgroups – Bond market and Stock market.

Primary and Secondary Markets: Is the place where investors purchase previously issued securities such as stocks, bonds, futures, and options from other investors, rather from issuing companies themselves. 

 

What does the “flow of funds” refer to? Explain in detail.

Are national financial accounts that track the movement of money among industries or sectors of the economy. Governments can use the Flow of Funds accounts to devise monetary and fiscal policies.

Comments

  1. Erika's BlogJuly 7, 2021 at 4:36 PM

    This comment has been removed by the author.

    ReplyDelete
  2. Erika's BlogJuly 7, 2021 at 4:41 PM

    Hey!
    I read your replies and I'm not sure regards to question about main types of financial institutions, it happens that I wrote only three types: banking and non-banking, intermediaries and non intermediaries, you added two more:
    1. Money and Capital Markets
    2. Primary Secondary Markets
    I suppose that they belong to the question of types of financial markets because I have answered with these types.
    How about it? ;)

    ReplyDelete

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