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AN INTRODUCTION TO MONEY AND THE FINANCIAL SYSTEM

AN INTRODUCTION TO MONEY AND THE FINANCIAL SYSTEM. CHAPTER 1. THE FIVE PARTS OF THE FINANCIAL SYSTEM. Money Financial Instruments Financial Markets Financial Institutions Central Bank. Financial System.

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AN INTRODUCTION TO MONEY AND THE FINANCIAL SYSTEM

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  1. AN INTRODUCTION TO MONEY AND THE FINANCIAL SYSTEM CHAPTER 1

  2. THE FIVE PARTS OF THE FINANCIAL SYSTEM • Money • Financial Instruments • Financial Markets • Financial Institutions • Central Bank

  3. Financial System • The financial system is the system that allows the transfer of money between savers (and investors) and borrowers • A financial system can operate on a global, regional or firm specific level • Financial systems are crucial to the allocation of resources in a modern economy

  4. What is Money ? • Brainstorm concepts that come to your minds when you think of “Money”

  5. Money • Any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context • Money originated as commodity money, but nearly all contemporary money systems are based on fiat money

  6. Financial Instruments • Transfer resources from savers to investors • Transfer risk to those who are best equipped to do it

  7. Financial Markets • Where buyers and sellers come together to buy and sell financial instruments quickly and cheaply

  8. Financial Institutions • Provide a myriad of services, including access to the financial markets and collection of information about prospective borrowers to ensure they are creditworthy • Banks, securities firms and insurance companies

  9. Canada’s Big Five • Royal Bank of Canada (RBC) • Toronto-Dominion Bank (TD) • Bank of Nova Scotia (BNS) • Bank of Montreal (BMO) • Canadian Imperial Bank of Commerce (CIBC)

  10. Central Bank • Monitor and stabilize the economy • Low and stable inflation rate • Low unemployment rate • Healthy economic • The Bank of Canada • The Federal Reserve System (Fed) • The Bank of Vietnam

  11. The Five Core Principles Of Money And Banking Core Principle 1: Time has value • Time affects the value of financial transactions • How much you willing to pay today to achieve a certain amount of money in the future • How long you want to invest your money

  12. Core principle 2: Risk required compensation • Always assume there is risk involve in using and borrowing money • Therefore, risk requires compensation. Compensation is made in the form explicit payments • The higher the risk, the bigger the required payment

  13. Core principle 3: Information is the basis for decisions • Collection and processing of information • Information is a key role to any financial decision

  14. Core principle 4: Markets set prices and allocate resources • Financial markets are essential to the economy, channeling its resources and minimizing the cost of gathering information and making transaction • Why a better developed financial market will grow the country faster ?

  15. Core principle 5: Stability improves welfare • Reducing volatility reduces risk • Fed and the European Central Bank

  16. Inflation • Increase in the general level of prices • Reduces purchasing power • Inflation and deflation

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