Overview of Financial Markets, Institutions and Money

1205 WordsMar 29, 20155 Pages
FIN 111 LECTURE WEEK 2 Overview of financial markets, institutions and money 1. Explain the role of the financial system and why it is important to individuals and to the economy as a whole The financial system consists; i) Financial markets (markets for buying and selling financial instruments) Money market and capital market Primary and secondary market Creation of Financial assets (shares, bills, notes) Trading of financial assets ii) Financial Institutions Banks, finance companies, credit unions Invest in financial assets (loans, shares, properties) Provide financial services iii) Money Act as medium of exchange, represent the store of wealth The role of the financial system is to gather money from SSUs and transfer it to DSUs in the…show more content…
Describe the various types of financial markets Financial markets bring together the needs of suppliers (investors) and users (borrowers) of funds Primary market: Where financial claims are initially sold by DSUs (first time) to raise funds. Public securities are issued/sold by companies to investors (IPOs) Secondary market: Public securities are traded from current investor to new investors (transfer of ownerships) Types of secondary market Auction market (organised exchange) An auction market is where buyers enter competitive bids and sellers enter competitive offers at the same time. This occurs in a centralized trading location (NYSE AND ASX examples) Dealer market (over the counter) Provide continuous bidding (selling and buying) for the security by holding inventories of securities. No central trading location NASDAQ best known example of a dealer market Other types of financial markets: Futures and options Often called derivative
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