TOPIC 5 ECO (chapter 12 - 13) Flashcards
financial markets
provide products that provide returns for HH & businesses w/ excess funds & make funds available to those needing additional money for consumption or investment (C&I)
financial intermediaries (banks)
firms hold savings (accumulated funds) of individuals/firms as DEPOSITS, make LOANS to other FIRMS/IND who can make USE of them
bridge between savers & borrowers in economy
4 sources of savings
- proportion of household income not spent on consumer goods
-
business who dont distribute all profits to owners
-funds not distributed can be supplied to financial markets until needed -
GVT budgets for SURPLUS
-revenue > expenditure - FOREIGN pools of savings supplied by individuals, firms & GVTs from overseas AUS can borrow from
4 reasons for borrowing for each person
- consumers borrow when demand for g&s EXCEEDS current capacity to pay
-borrow to purchase houses - entrepreneurs/bus managers borrow to FUND OPERATION/EXPANSION of businesses
- GVT borrows funds when it BUDGETS for DEFECIT
-expenditure > revenue -
AUS financial institutions (banks) LEND money OVERSEAS to borrowers
-AUS NET borrower in GLOBAL financial system, borrows more than lends overseas
financial markets are the ___ markets for ___ in an economy
factor markets for capital
income isn’t expended immediately & still constributes to present aggregate demand by allowing others to borrow surplus for immediate C&I
since when were financial markets more important for the economy?
since the financial sector was deregulated in early 1980s
financial instruments
shares, investment funds, superannuation, bonds
what financial services does AUS fianncial sector provide
home mortgages, credit cards, personal loans, super management, insurance
securities
any form of financial instrument that provides holder of instrument with claim over real assets/future income stream
2 types of financial markets
- primary financial markets
- secondary financial markets
primary financial markets
facilitate CREATION of financial ASSETS (SECURITIES) can sold into economy
-bus wants raise funds, borrow money by issuing debt securities/expand ownership of company by selling new shares
-money received from investors directly to company
secondary financial markets
transactions w/ financial assets ALREADY ISSUED on primary market in PAST
-no NEW financial ASSET is CREATED, but OWNERSHIP of existing financial asset TRANSFERRED from 1 individual/bus to another
-companies whose securites TRADED here DONT receive MONEY from TRANSACTIONS
ASX
australian securities exchange
-PRIMARY and SECONDARY financial market
major share market in AUS, purchase & sale of most shares in PUBLIC companies
-share market brings together ppl wishing to buy & sell shares to allow TRANSACTIONS occur
4 main financial markets across the WORLD
SDDF
SHARE/equity market
ownership shares in companies issued/exchanged
DEBT market
-debt securities (eg. bonds) exchanged/cash lent & borrowed
DERIVATIVES market
-ppl buy & sell financial assets based on VALUE of OTHER financial ASSETS
FOREIGN EXCHANGE market
-financial assets defined in 1 country’s currency exchanged for assets defined in another country’s currency
all financial intermediaries perform the same basic function:
channel excess savings from NET SAVERS in economy to those wishing to borrow frunds (NET BORROWERS)
non-financial intermediaries
legally cannot hold deposity
banks (financial) hold deposits on behalf of savers
banks comprehensive offer of financial services
-accepting deposits (savings)
-making advances (loans)
-issuing credit cards
-arrange overseas payments & collect funds
fintech
type of financial services business using tech eg. AI to increase efficiency/deliver new services
other financial institutions FICPS
Finance companies
investment banks
credit unions
permanent building societies
superannuation funds
finance companies
obtain most their funds by borrowing from general PUBLIC, issuing DEBT SECURITIES/from banks (non-financial businesses)
-funds loaned out to households/businessese at HIGHER rates of INTEREST to make profit
-fintechs
investment banks
borrow on short-term basis from companies with SURPLUS FUNDS
-lend funds to other large companies (expand business) & GVT agencies
-provide financial advisory services to large companies eg. takeovers, trade securities for profit
credit unions
non profit cooperative organisations
-members belong to certain trade, industry, profession, live certain area
-ppl deposit/borrow money with profits returned to members
permanent building societies
accept deposits from PUBLIC & provide FUNDS mainly for HOME LOANS
-also offer business loans but interest rate structure controlled lil by STATE GVTs
superannuation funds
long term contribution of employees & ers and invest in financial assets to provide retirement income for contributors