1.

• Primary market transactions generally provide funds for business development and
thus economic growth.
• Investors will purchase primary market securities if they know that there is a deep
and liquid secondary market in which they are able to sell the securities at a later
date, if necessary. That is, the secondary market provides liquidity for an investor.
• Secondary market transactions provide price discovery in that the securities will be
sold at the current market value.
2. Component parts of a financial system:
• Financial institutions - example: banks, insurance offices, superannuation funds.
• Financial instruments - example: shares, term deposits, loan contracts.
• Financial markets - money and capital markets, stock market, and foreign exchange
market.
Discussion:
• Financial system supports economic transactions.
• Encourages savings which provides funds for investment.
• Provides a range of investment opportunities.
• Provides a range of borrowing alternatives.
• Efficient allocation of resources for economic growth.
• Regulatory regimes provide strength and stability to a financial system.