How Financial System and Markets Works

<span style="font-family: Trebuchet MS, sans-serif; font-size: x-large;"><b>How Financial System and Markets Works</b></span><br /> <span style="font-family: Trebuchet MS, sans-serif; font-size: large;"><b><br /></b></span> <br /> <div style="text-align: justify;"> <span style="background-color: white; font-family: 'Trebuchet MS', sans-serif; font-size: 19px; line-height: 26.1333332061768px;">Financial system  is the organised framework of markets, intermediaries, authorities and instruments.</span></div> <span style="font-family: Trebuchet MS, sans-serif;"></span><br /> <div style="text-align: justify;"> <span style="font-family: Trebuchet MS, sans-serif;"><span style="font-size: 19.0909080505371px; line-height: 26.1333332061768px;"><br /></span></span></div> <span style="font-family: Trebuchet MS, sans-serif;"> <span style="background-color: white; font-size: 19px; line-height: 26.1333332061768px;"></span></span> <div style="text-align: justify;"> <span style="font-family: Trebuchet MS, sans-serif;"><span style="background-color: white; font-size: 19px; line-height: 26.1333332061768px;"><span style="font-size: 19px; line-height: 26.1333332061768px;">The </span><span style="font-size: 19px; line-height: 26.1333332061768px;">Financial system</span><span style="font-size: 19px; line-height: 26.1333332061768px;">, in a developed economy, is the structure though which financial activity (supply/demand) is performed.</span></span></span></div> <span style="font-family: Trebuchet MS, sans-serif;"><span style="background-color: white; font-size: 19px; line-height: 26.1333332061768px;"> </span><div style="text-align: justify;"> <span style="font-size: 19.0909080505371px; line-height: 26.1333332061768px;"><br /></span></div> <span style="background-color: white; font-size: 19px; line-height: 26.1333332061768px;"><div style="text-align: justify;"> <span style="font-size: 19px; line-height: 26.1333332061768px;">3 basic needs are satisfied by </span><span style="font-size: 19px; line-height: 26.1333332061768px;">Financial system</span><span style="font-size: 19px; line-height: 26.1333332061768px;">: monetary settlement of trade ,  transfer and management of risks and transfer of funds from surplus to deficit entities/units (saving management and investment financing).</span></div> </span></span><br /> <h2 style="background-color: white; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 11px; font-stretch: normal; margin: 0px 0px 1em; position: relative; text-align: justify;"> <span lang="EN-US" style="font-family: Calibri, sans-serif; font-size: 14pt;"><span style="line-height: 26.1333332061768px;"><br /></span></span></h2> <h2 style="background-color: white; font-size: 11px; font-stretch: normal; margin: 0px 0px 1em; position: relative;"> <span lang="EN-US" style="font-family: Trebuchet MS, sans-serif; font-size: 14pt;"><span style="line-height: 26.1333332061768px;">The </span><span style="line-height: 26.1333332061768px;">Financial system</span>: financial resources : efficiency/effectiveness</span></h2> <div style="text-align: justify;"> <span style="background-color: white; font-size: 19px; line-height: 26.1333332061768px;"><span style="font-family: Trebuchet MS, sans-serif;">The key function of financial markets is channeling funds from households,firms and govt who have saved (spending less than their income) to borrowers-spenders (shortage of funds,firms and govt). There are direct and indirect way of financing</span></span></div> <div style="text-align: justify;"> <span style="background-color: white; font-family: Calibri, sans-serif; font-size: 19px; line-height: 26.1333332061768px;"><br /></span></div> <h2 style="background-color: white; font-size: 11px; font-stretch: normal; margin: 0px 0px 1em; position: relative;"> <span lang="EN-US" style="font-family: Trebuchet MS, sans-serif; font-size: 14pt;"> Scope and Structure of the Financial System</span></h2> <div> <span lang="EN-US" style="font-family: Calibri, sans-serif; font-size: 14pt;"><br /></span></div> <div> <div style="text-align: justify;"> <span style="background-color: white; font-family: 'Trebuchet MS', sans-serif; font-size: 19px; line-height: 26.1333332061768px;">Financial system</span><span style="background-color: white; font-family: 'Trebuchet MS', sans-serif; font-size: 14pt; line-height: 26.1333332061768px;"> allows efficient and purposed accumulation of financial resources (capital) and allocation of savings among different possible investment solutions</span></div> <span lang="EN-US"><br style="background-color: white; line-height: 26.1333332061768px;" /></span> <br /> <div style="text-align: justify;"> <span lang="EN-US"><span style="background-color: white; font-family: 'Trebuchet MS', sans-serif; font-size: 19px; line-height: 26.1333332061768px;">Financial system</span><span style="background-color: white; font-family: 'Trebuchet MS', sans-serif;"><span style="font-size: 14pt; line-height: 26.1333332061768px;"> efficiency: ability to </span><span style="font-size: 19.0909080505371px; line-height: 26.1333332061768px;">incentive's</span><span style="font-size: 14pt; line-height: 26.1333332061768px;"> market operators to </span><span style="font-size: 19.0909080505371px; line-height: 26.1333332061768px;">maximize</span><span style="font-size: 14pt; line-height: 26.1333332061768px;"> volume of available resources, to activate channels/networks of transfer of those resources allowing investment financing with higher returns at given risk appetite (efficient allocation).</span></span></span></div> <span lang="EN-US"> </span></div> <div> <span lang="EN-US"><span style="background-color: white;"><span style="font-family: Calibri, sans-serif;"><span style="font-size: 14pt; line-height: 26.1333332061768px;"><br /></span></span></span></span></div> <div> <span lang="EN-US"></span><br /> <h2 style="background-color: white; font-size: 11px; font-stretch: normal; margin: 0px 0px 1em; position: relative;"> <span lang="EN-US"> <span lang="EN-US" style="font-family: Calibri, sans-serif; font-size: 14pt;"> </span><span lang="EN-US" style="font-family: Trebuchet MS, sans-serif; font-size: 14pt;">Type of Financial Markets (FMs): direct finance</span></span></h2> <span lang="EN-US"> </span> <div> <div style="text-align: justify;"> <span lang="EN-US"><span style="background-color: white; font-family: 'Trebuchet MS', sans-serif; font-size: 14pt;">Debt and Equity Markets:</span></span></div> <span lang="EN-US"><span lang="EN-US"></span><br /></span> <div style="text-align: justify;"> <span lang="EN-US"><span lang="EN-US"><span style="font-family: 'Trebuchet MS', sans-serif; font-size: 19.0909080505371px;"><br /></span></span></span></div> <span lang="EN-US"><span lang="EN-US"> <span style="font-family: Trebuchet MS, sans-serif;"></span></span></span> <div style="font-size: 14pt; text-align: justify;"> <span lang="EN-US"><span lang="EN-US"><span style="font-family: Trebuchet MS, sans-serif;"><span style="background-color: white; font-size: 14pt;">·        Bonds/CPs: contractual obligations fixed amount to pay by borrower (maturity)</span></span></span></span></div> <span lang="EN-US"><span lang="EN-US"><span style="font-family: Trebuchet MS, sans-serif;"> <span lang="EN-US" style="background-color: white;"><div style="text-align: justify;"> <span style="font-size: 19.0909080505371px;"><br /></span></div> <span style="font-size: 14pt;"><div style="text-align: justify;"> <span style="font-size: 14pt;">·        Equities: claims to share in the net income and assets of a business</span></div> </span><div style="text-align: justify;"> <br /></div> <span style="font-size: 14pt;"><div style="text-align: justify;"> <span style="font-size: 14pt;">Primary and Secondary Markets (new and resold securities)</span></div> </span><div style="text-align: justify;"> <br /></div> <span style="font-size: 14pt;"><div style="text-align: justify;"> <span style="font-size: 14pt;">Secondary Markets: Exchange and OTC Markets (one location vs. different locations dealers stand ready to buy/sell to anyone who comes and contacts them)</span></div> </span><div style="text-align: justify;"> <br /></div> <span style="font-size: 14pt;"><div style="text-align: justify;"> <span lang="EN-US"><span style="font-size: 14pt;">Money and Capital Markets (short-term instruments vs. long-term instruments).</span></span><span lang="EN-US" style="color: #222222; font-size: 14pt;"></span><span style="color: #222222; font-size: 13px; line-height: 18.4799995422363px;"> </span></div> </span></span></span></span></span></div> <span lang="EN-US"> <div style="text-align: justify;"> <span lang="EN-US" style="font-family: Calibri, sans-serif; font-size: 14pt;"><span style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px; line-height: 18.4799995422363px;"><br /></span></span></div> </span></div> <span style="background-color: white; font-family: Calibri, sans-serif; font-size: 19px; line-height: 26.1333332061768px;"><br /></span> <span style="background-color: white; font-family: Calibri, sans-serif; font-size: 19px; line-height: 26.1333332061768px;"><br /></span> <span style="background-color: white; font-family: Calibri, sans-serif; font-size: 19px; line-height: 26.1333332061768px;"><br /></span> <span style="background-color: white; font-family: Calibri, sans-serif; font-size: 19px; line-height: 26.1333332061768px;"><br /></span>

How Financial System and Markets Works

How Financial System and Markets Works Financial system  is the organised framework of markets, intermediaries, authorities and instrume...

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