1、Money and Capital Markets,1,C h a p t e r,Eighth Edition,Financial Institutions and Instruments in a Global Marketplace,Peter S. Rose,McGraw Hill / Irwin,Slides by Yee-Tien (Ted) Fu,Functions and Roles of the Financial System in the Global Economy, Learning Objectives ,To understand the functions pe

2、rformed and the roles played by the system of financial markets and institutions in the global economy. To explore several key terms and concepts of the money and capital markets. To discover how important the financial system is in increasing our standard of living, generating new jobs, and buildin

3、g our savings to meet tomorrows financial needs.,Introduction,The financial system is the collection of markets, institutions, laws, regulations, and techniques through which bonds, stocks, and other securities are traded, interest rates are determined, and financial services are produced and delive

4、red around the world.,Introduction,The primary task of the financial system is to move scarce loanable funds from those who save to those who borrow to buy goods and services and to make investments in new equipment and facilities, so that the global economy can grow and the standard of living can i

5、ncrease.,Flows within the Global Economic System,The basic function of the economic system is to allocate scarce resources land, labor, management skill, and capital to produce the goods and services needed by society. The global economy generates a flow of production in return for a flow of payment

6、s. The circular flow of production and income is interdependent and never ending.,Flows within the Global Economic System,Flows within the Global Economic System,The Role of Markets in the Global Economic System,In most economies around the world, markets carry out the complex task of allocating res

7、ources and producing goods and services. The marketplace determines what goods and services will be produced and in what quantities through their prices. Markets also distribute income by rewarding superior producers with increased profits, higher wages, and other economic benefits.,Types of Markets

8、,There are essentially three types of markets within the global economic system. The factor markets allocate the factors of production to the owners of productive resources. Consuming units use most of their income from factor markets to purchase goods and services in product markets.,Types of Marke

9、ts,The financial markets channel savings to those individuals and institutions needing more funds for spending than are provided by their current incomes.,Types of Markets,The Financial Markets and the Financial System:Channel for Savings and Investment,The financial markets make possible the exchan

10、ge of current income for future income and the transformation of savings into investment so that production, employment, and income can grow. The suppliers of funds to the financial system can expect not only to recover their original funds but also to earn additional income as a reward for waiting

11、and for assuming risk.,The Global Financial System,Functions Performed by the Global Financial System and the Financial Markets,Savings function. The global system of financial markets and institutions provides a conduit for the publics savings. Wealth function. The financial instruments sold in the

12、 money and capital markets provide an excellent way to store wealth. Liquidity function. Financial markets provide liquidity for savers who hold financial instruments but are in need of money.,Functions Performed by the Global Financial System and the Financial Markets,Credit function. Global financ

13、ial markets furnish credit to finance consumption and investment spending. Payments function. The global financial system provides a mechanism for making payments for goods and services.,Functions Performed by the Global Financial System and the Financial Markets,Risk protection function. The financ

14、ial markets around the world offer businesses, consumers, and governments protection against life, health, property, and income risks. Policy function. The financial markets are a channel through which governments may attempt to stabilize the economy and avoid inflation.,Types of Financial MarketsWi

15、thin the Global Financial System,The money market is for short-term (one year or less) loans, while the capital market finances long-term investments by businesses, governments, and households. In particular, governments borrow from commercial banks in the money market, while in the capital market,

16、insurance companies, mutual funds, security dealers, and pension funds supply the funds for businesses.,Types of Financial MarketsWithin the Global Financial System,The money market may be subdivided into Treasury bills, certificates of deposit (CDs), bankers acceptances, commercial paper, federal f

17、unds and Eurocurrencies. The capital market may be subdivided into mortgage loans, tax-exempt (municipal) bonds, consumer loans, Eurobonds and Euronotes, corporate stock, and corporate notes and bonds.,Types of Financial MarketsWithin the Global Financial System,In open markets, financial instrument

18、s are sold to the highest bidder, and they can be traded as often as is desirable before they mature. In negotiated markets, the instruments are sold to one or a few buyers under private contract. Financial capital is raised when newly issued securities are sold in the primary markets. Security trad

19、ing in the secondary markets then provides liquidity for the investors.,Types of Financial MarketsWithin the Global Financial System,In the spot market, assets or financial services are traded for immediate delivery (usually within two business days). Contracts calling for the future delivery of fin

20、ancial instruments are traded in the futures or forward market. Contracts granting the right to buy or sell certain securities at specified prices within a certain period are traded in the options market.,Credit, the Common Commodity. The shifting of borrowers among markets helps to weld the parts o

21、f the global financial system together and to bring the credit costs in the different markets into balance with one another. Speculation and Arbitrage. Speculators who watch for profitable arbitrage opportunities help to maintain consistent prices among the markets.,Factors Tying All Financial Marke

22、ts Together,Factors Tying All Financial Markets Together,Perfect and Efficient Markets. There is some research evidence suggesting that financial markets are closely tied to one another due to their near perfection and efficiency. In the real world however, market imperfection and information asymme

23、try exist.,The Dynamic Financial System,The global financial system is rapidly changing. In particular, there are trends toward the deregulation of financial institutions and services, the harmonization of regulations, and global integration, leading to more intense competition as well as the develo

24、pment of new financial services.,The Plan of This Book,Part One provides an overview of the global financial system its role in the worlds economy and its basic characteristics. Part Two examines the forces that shape interest rates and the prices of financial instruments. Part Three draws our atten

25、tion to the money market and its principal instruments and institutions (including the central bank).,The Plan of This Book,Part Four gives a closer look at commercial banks, credit unions, savings and loan associations, money market funds, insurance companies, pension funds, mutual funds, and other

26、 financial-service firms. Part Five turns to the role of governments federal, state, and local within the global financial system.,The Plan of This Book,Part Six focuses on the financial activities of nonfinancial business firms and consumers. Part Seven is devoted to the international financial sys

27、tem and future trends in global finance.,Money and Capital Markets in Cyberspace,For more on the nature of the financial system, see http:/homepages.uel.ac.uk/K.Bain/fimac223.html. Help on planning for savings and investments is available at /investor.shtml. How much wealth does the

28、 U.S. really have and how unevenly is it distributed? See /research/description.htm#1.113 and http:/woodrow.mpls.frb.fed.us/research/.,Money and Capital Markets in Cyberspace,For a discussion of the important roles performed by capital markets within the financial system, see /finance/. For further discussion on the low U.S. savings rate, see For a discussion of the concept of arbitrage, see ,Money and Capital Markets in Cyberspace,Some experts see the Internet