5 Money, foreign exchange, finance

 Answer the questions.

What is Finance? The man defines finance in the video as monetary resources comprising depth and the ownership of the funds of the company or person. 

 

What is Financial System? The video says that in short words the financial system is made of different integrate and complex models that deal with financial transactions and the exchange of money between savers, investors, lenders and borrowers. Also the financial system tries to integrate stakeholders for the transaction purpose and also to exchange the money between them.

What are the functions of a financial system?

• It provides a 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 the government for public expenditure on social welfare activity, infrastructure development, etc. 

 

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

• Banking and Non-Banking: The first one provides transaction services, the second one takes the money from us but they are not able to create the money in the system.

• Intermediaries and Non-Intermediaries: Intermediaries intermediate between the savers and the investors, try to bring them together. The non-intermediaries do the loan business where the resources are not directly from the savers.

 

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

There are three:

1. Money: medium of exchange or means of payment.

2. Credit: refers to a debt of an economic unit.

3. Finance: monetary resources comprising debt and ownership funds of the state, company or person. 

 

 

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

Are based on differences on the period of maturity of financial assets issued in markets. Also money and capital markets deal with short term claims with maturity of one year or less. Primary markets deal with financial claims and secondary markets with securities and fluctuation of the demand and supply of security.

 

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

They are financial accounts that track the movement of money between industries or sectors of the economy. Those that measure the scale and scope of the flow of funds in the economy are compiled and disseminated by the central bank for economic analysis.