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4 Cards in this Set
- Front
- Back
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6 functions of financial systems: |
1. Settlement of transactions 2. The flow of funds (between surplus and deficit units either directly through financial markets or indirectly through financial institutions) 3. Risk management (transfer risk to others who are willing to take it) 4. To overcome information asymmetry 5. To resolve incentive problems (incentives may encourage bad behaviour e.g. selling defective high risk instruments to recieve a bonus for sales) 6. To pool funds (pool funds to afford larger loan) |
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What are financial institutions? |
The flow of funds indirectly and settlement of transactions. - banks (authorised deposit taking institutions [ADIs] retail and/or wholesale) - fund managers (arrange collective investment of investors funds) - insurance companies |
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What are financial markets? |
Flow of funds indirectly - money market: trading in short debt securities - bond market: trading in long term debt securities - equity/share market: trading in shares (ownership) - fx market: transactions made in different currencies - derivatives |
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Financial regulators? |
APRA: prudential regulator of ADIs, insurance companies and super fund trustees. They seek to ensure institutions meet the needs of their customers ASIC: enforces company and financial services laws to protect customers, investors and creditors RBA: determines monetary policy and ensures operation of payment system The australian treasury: not a regulator but serves as the govs main economic department to influence framework for regulations |
