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 Outline the structure and  Discuss the organization and
importance of the financial functioning of financial institutions.
system.

 Explain the functions of the Federal

List the various types of Reserve System and the tools it

securities. uses to control the supply of money
and credit.
Define financial market, and

distinguish between primary and Evaluate the major features of

secondary financial markets. regulations and laws affecting the
financial system.

 Describe the characteristics of the

major stock exchanges.
 Describe the global financial
system.
?he ˜

 
is the
process by which money
flows from savers to users.
' Financial System
± Savers
± Users
± Financial Institutions
± Financial Markets

' Savings is a function of many variables.

' Funds can be transferred between users and
savers directly or indirectly.
' Securities
± Financial instruments
± Obligations on the part of the issuer
' usinesses and Governments
± Provide rate of return to purchasers
' Ö
Ö




'


'  
' Short-term Debt Securities
± Issued by governments, financial institutions
and corporations
' Investors are paid interest for the use of
their funds.
' Generally low-risk
' È  

 



 

' s





± onds sold by the U.S. Department of the
?reasury.
' 
 

± onds issued by state or local governments
' Revenue bonds are used toward a project that will
produce revenue, General Obligation onds are
not.
' Price is determined by risk and interest
rate.
' Several firms rate bonds
± Standard & Poor¶s (S&P)
± Moody¶s
' Investment-grade
' Speculative/Junk
' `

  ± 
  claims in
corporations.
± Vote on major company decisions
± Cash dividends
± Price appreciation

'  ˜    ± stockholders with

preference in the payment of dividends.
 Stockholder has the
right to exchange the
bond or preferred
stock for a fixed
number of shares of
common stock.
' 
  ± firms and governments
issue securities and sell them initially to
the public.
± When a firm offers a stock for sale to the
general public for the first time.

'  
  ± collection of financial

markets in which previously issued
securities are traded among investors.
 
  
 
market in which common
stocks are traded, such as the
New York Stock Exchange.
' ?    
 ± the ig oard is the
most famous and one of the oldest stock markets in the
world. More than 3,000 stocks are listed on NYSE.

' ?     ± the second largest stock

market. Over 5,000 companies have their stocks listed
on Nasdaq but many are smaller firms.

'      

± ?he American Stock Exchange/AMEX
± Regional Stock Exchanges
± Foreign Markets
' `  






 
± ?he 4th Market
± uyers and sellers meet in a virtual market
and exchange with one another
± ?ake place on INE? or Archipelago

' INE? and Archipelago have been

purchased by Nasdaq and NYSE
' Investors use brokerage firms, they:
1) Establish an account
2) Enter orders
3) ?rade stock

' ?he brokerage firm executes the trade

on behalf of the investor, charging a fee
for the order
± Market Order
± Limit Order
Ú Commercial anks
Ú Savings anks and Credit Unions
Ú Non-depository Institutions
Ú An increasing amount of funds move through electronic
funds transfer (EF?s).
Ú Millions of businesses and consumers now pay bills and
receive payments electronically.
Ú Most employees directly deposit employee paychecks.
Ú Social security and other federal payments are made
each year electronically.
Ú Automated ?eller Machines (A?Ms) continue to grow in
popularity.
Ú More than 1/3 of American households use some online
banking.
' Enacted by the anking Act of 1933

' Restore public confidence in the banking system

' efore deposit insurance, runs were common as

people rushed to withdraw their money from the
bank

' Deposit insurance shifts the risk of bank failures

from individuals to the FDIC
' Offer a variety of consumer services

'
5% of their loans are real estate loans

' Credit unions are cooperative financial

institutions that are owned by
depositors/members.

' Credit unions are created to serve consumers.

± Insured by National Credit Union Administration
(NCUA) which functions the same as the FDIC
Ú Insurance Companies

Ú Pension Funds

Ú Finance Companies
' Created In 1913
' Central bank of the United States
' Regulate commercial banks
' Perform banking-related activities for the
U.S. Department of ?reasury
' Providing services for banks
' Setting monetary policy
' 12 Federal reserve districts
± Own federal reserve bank
' District banks are run by a nine-member board
of directors.
' ?he board of governors is the governing body.
' Politically independent
' „ 
 `

 „`
sets most policies concerning monetary policy
and interest rates.
' Americans still write billions of paper checks.
' ?he process by which funds are transferred from
the check writer to receiver
' ?he multiple-step process is managed and
cleared by the FED.
' ?he Check Clearing for the 21st Century Act is
making this process more electronic.
' Supply of money and credit
' Measures of the money supply: M1 & M2
' ?he FED requires banks to maintain
reserves.
' Set the discount rate
' Open Market Operations
' ank Regulation
' Government Regulation of the Financial
Markets
' Industry Self-Regulation
± Rules of conduct by professional
organizations like National Association of
Securities Dealers
± Market Surveillance
' ?he financial system is
more 


' Financial institutions are
more global.
' 
! ˜ !" largest
banks in the world are US
institutions.
' Most nations have a
central bank.