WEEKLY ASSIGNMENT 1

 Describe the flow of funds that characterizes any financial system. 

Financial institutions that issue and trade financial instruments in financial markets
make up the financial system. This makes it possible for money to go from parties
with excess savings to parties in need of money to invest or up their current
spending. Therefore, flow of funds can be categorized in two types: direct and
intermediary.

Funds are obtained by users of funds directly from providers in the primary market
(savers), this process of financing the financial instruments is called direct finance or
direct flow of funds. Here, the providers are either brokers or dealers where brokers
act as a middle person for two parties for a fee and dealers hold on to securities
which are issued by someone else and buy and sell them at a price spread.

Intermediated finance is an arrangement where banks and unit trusts buy securities
or other financial instruments from other parties and sell the claims to the ultimate
users in their own name against the entitlement to the cashflows. Also, they can
change the nature of the finances during the procedure so that it benefits both parties.
  What are the differences between primary market and secondary market
financial transactions?
Primary Market financial
transactions
Meaning Securities issued by firms into
the market for the first time.
Price The price is determined by the
determination company itself as new securities
are issued for the first time in
the primary market.
Financing to Funds are raised for financing
companies companies for their expansion
and diversification.
Flow of funds There is a direct flow of funds
as the users obtain the funds
directly from the providers.
Type of All types of company can issue
company the share whether listed or not
Liquidity Does not provide liquidity of the This market provides liquidity
market securities.
Secondary Market financial
transactions
The buying and selling of
existing financial securities.
The price is determined by the
demand and supply in the stock
exchange.
No new funds are raised as
buying and selling of securities
are done by the investors.
The saver provides funds to an
intermediary and the
intermediary provides funding
to the ultimate user of the funds
Only the listed companies can
issue the shares.
of the market securities