B: Financial System

B: Financial System

1. Global

   • The global financial system is basically a broader regional system that encompasses all financial institutions, borrowers and lenders within the global economy.
   • include the International Monetary Fund, central banks, World Bank and major banks that practice overseas lending.

2. Regional

   • Financial Markets
     • Stock Exchanges / Capital Markets
       • Primary
       • Secondary
     • Money Markets
       • Primary
       • Secondary
       • Provide shortterm (< 1 year) debt financing and investment.
     • Commodities Market
       • Which facilitate the trading of commodities (e.g. oil, metals and agricultural produce).
     • Derivatives markets
       • which provide instruments for the management of financial risk, such as options and futures contracts (see later for an explanation of derivatives).
     • Foreign exchange markets
     • Insurance markets
   • Financial Institutions
     • Commercial Banks
     • Insurance Companies
     • Pension Funds
     • Building Societies
   • Financial Securities
     • Mortgages
     • Equity Shares
     • Bonds
     • Preference Shares
   • On a regional scale, the financial system is the system that enables lenders and borrowers to exchange funds.

3. Firm Specific Level

   • The firm's financial system is the set of implemented procedures that track the financial activities of the company.

4. FUNCTIONS OF FINANCIAL SYSTEM

   • Creates liquidity and money – e.g. banks create money through increasing their lending.
   • Provides a mechanism for payments – e.g. direct debits, cheque clearing system.
   • Provides financial services such as insurance and pensions.
   • Offers facilities to manage investment portfolios – e.g. to hedge risk.
   • Channels funds from lenders to borrowers.