Assignment 5: Money, Foreign Exchange, Finance

What is Finance?

Finance is a monetary resource comprising debt and ownership funds of the State, company or person.

What is the Financial System?

The Financial System is a systematic process where it deals with the financial transactions and the exchange of money between savers, investors, lenders and borrowers.

What are the functions of a financial system?

To Provide a payment system for the exchange of goods and services in the economy. 

To Provide a mechanism to pull the funds in terms of household saving for corporate investments. 

To Provide a financial capital for long-term capital formation for the government and business organizations. 

To Facilitate the investors and other market participants to liquidate their investment alternatives like stocks and bonds.

To Provide the avenues for managing the risks faced by the market participants.

To Take care of both short and long term needs of the market participants. 

To Supply the required financial capital to government for public expenditure on the social welfare activity. 

How are the main types of financial institutions categorized? Describe each one.

Banking and Non-Banking: banks provide transaction services, create deposits or credit, and can advance credit by creating claims against themselves. 

Intermediaries Vs. Non-Intermediarias: they lend money as well as mobilize savings, their liabilities are towards the ultimate savers. 

Which are the main classes of financial instruments issued in a financial system? Describe them in detail.

Cash instruments are financial instruments with values directly influenced by the condition of the markets.

Derivative instruments have values determined from underlying assets, such as resources, currency, etc.

Foreign Exchange are represented on the foreign market and primarily consist of currency agreements and derivatives

What are the distinctions between various types of financial markets according to their function? Explain them.

That financial markets refer broadly to any marketplace where the trading of securities occurs also there are many kind of financial markets.

Money and Capital Markets are based on the differences in the period of maturity of financial assets issued in those markets. 

And Primary deals in the new financial claim or new securities while the Secondary deals in securities already issued or existing.

What does the “flow of funds” refer to? Explain in detail.

Is the sum of all cash inflows or outflows from and into different financial assets, also usually calculated on a monthly or quarterly basis; no account is taken of the output of an asset or fund.

Write a final reflection on the topic, mentioning what were the most important aspects you learned.

This topic was very interesting because they talked about the financial system and the way it works, as well as the knowledge of new concepts that encompass this topic that should be public knowledge.