THE FINANCIAL

SYSTEM

Money and
 
the
Financial System
Introduction
This video will introduce the role of money and the financial system

The financial system facilitates transactions and also helps funds saved by one
party to be used to finance spending by another party

Understanding the various types of finance and transactions allows entrepreneurs,

executives and/or small business owners to make better decisions when
managing their businesses today and in the future
Learning Outcomes
By the end of this topic you should be able to:

• Discuss the primary role of the financial system in the economy, and how fund
transfers take place
• Identify the different types of participants in the financial system
• Differentiate between direct vs indirect financing
• Identify the two main types of finance – equity and debt
Money and the financial system
The financial system facilitates the transfer of money from those who have it to those who
need it:

• Surplus units and deficit units in the economy

• An economy cannot function efficiently without a competitive and sound financial

system that gathers money and channels it into the best investment opportunities.
 The allocation of capital is practically achieved through direct or indirect financing
Direct vs indirect financing
Size of global stock market (~US$95 trillion)
Size of global bond market (~US$106 trillion)
References
• Dimensional, 2015, A Different Way to Invest, Dimensional Fund Advisors
LP, Austin, U.S.A.
• Kidwell, D., Brimble, M., Docherty, Mazzola, P. and Basu, A., 2019,
Financial Markets, Institutions and Money,   4th edition, John Wiley & Sons
Australia Ltd, Milton, Australia.