ROLE OF FINANCIAL

MARKETS AND INSTITUTIONS

CHAPTER 1
OBJECTIVES

Describe the types of financial markets that

facilitate the flow of funds

Describe the types of securities traded within

financial markets

Describe the role of financial institutions within

financial markets
FINANCIAL MARKET
• A market in which financial assets can be
purchased or sold.
• It facilitates the flow of funds
Role of Financial Markets

Transfer funds from those who have

excess funds to those who need
funds
Accommodating Corporate Finance
Needs

Accommodating Investment Needs

Role of Financial Markets
TYPES OF FINANCIAL MARKETS

Primary Markets Secondary Markets

• Facilitate the issuance of new securities • Facilitate the trading of existing securities, which
allows for a change in the ownership of the
securities.
OBJECTIVES

Describe the types of financial markets that

facilitate the flow of funds
SECURITIES TRADED IN FINANCIAL MARKETS

Money market securities Capital Market Securities Derivative

Securities
Treasury bills Certificate of Commercial Bonds Mortgages & Stocks Futures
deposit paper Mortgage- contracts,
backed Options
securities contracts, &
credit default
swaps
VALUATION OF SECURITIES

IMPACT OF IMPACT OF

INFORAMTION BEHAVIORAL
FINANCE

IMPACT OF IMPACT OF

INTERNET UNCERTAINTY
IMPACT OF INFORMATION ON VALUATION
OTHER CONSIDERATIONS

SECURITIES GOVERNMENT
REGULATION INTERVENTION
INTERNATIONAL
TRANSACTIONS
OBJECTIVES

Describe the types of securities traded within

financial markets
ROLE OF FINANCIAL
INSTITUTIONS

Since financial
markets are imperfect,
financial institutions
are needed to resolve
such limitations
 FINANCIAL INSTITUTIONS

Depository Institutions Non-depository Institutions

Commercial Savings Credit Finance Mutual Securities Insurance Pension

banks institutions unions companies funds firms companies funds
EXAMPLES OF FLOWS OF FUNDS
TYPICAL STRUCTURE OF FINANCIAL CONGLOMERATE
SOURCES AND USES OF FUNDS
OBJECTIVES

Describe the role of financial institutions within

financial markets
ASSIGNMENT
• Page 24, Flow of Funds Exercise: “Role of Financial
Markets and Institutions”
• Questions A-J
• Upload answers as a PDF file in eLearn
• Due date: On or before Sunday, August 14, 23:59 PM
END OF
CHAPTER ONE