Introduction to the Financial System

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Introduction to the Financial System

This course introduces and defines the financial system and the six elements that make it up. It also defines the financial entities that facilitate the flow of funds in the financial system and the four sectors of the economy that make up the non-financial lenders and borrowers.
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Introduction to the Financial System course content

Defining the Financial System

Lesson Excerpts

Defining the Financial System

Defining the Financial System

This course is made possible through the generous financial support of the Arab Gulf Program for Development (AGFUND). _For more information visit the Global Platform on Financial Inclusion _

Defining the Financial System

Course Objectives By the end of this course, you should be able to: Define the financial system. Describe the elements that make up the financial system. Elucidate the allied (non-principal) financial bodies / entities that assist in facilitating the flow of funds and securities in a financial system. Name and define the sectors of the economy that constitute the non-financial lenders and borrowers.

Defining the Financial System

Defining the Financial System

Every scholar on the financial markets has attempted a definition of the financial system.

Defining the Financial System

Our Definition of the Financial System is: The financial system is a set of arrangements / conventions embracing the lending and borrowing of funds... by non-financial economic units and the intermediation of this function by financial intermediaries in order to facilitate the transfer of funds, to create additional money when required, and to create markets in debt and equity instruments (and their derivatives) so that the price and allocation of funds are determined efficiently.

Elements and Participants of the Financial System: Part 1

Lesson Excerpts

Elements and Participants of the Financial System | Part 1

Elements and Participants of the Financial System: Part 1

In our definition of financial systems, there are six essential elements. This lesson will take you through the six essential elements.

Elements and Participants of the Financial System: Part 1

Essential Element Four The Creation of Money The creation of money when required, i.e., the unique money creating ability of banks is essential element four.

Elements and Participants of the Financial System: Part 1

Elements and Participants of the Financial System: Part 2

Lesson Excerpts

Elements and Participants of the Financial System | Part 2

Elements and Participants of the Financial System: Part 2

Five key participants are: Brokers and Dealers Fund Managers Financial Exchanges Credit Rating Agencies Financial Regulators

Elements and Participants of the Financial System: Part 2

Participant ThreeThe Financial Exchanges The financial exchanges that allow the broker-dealers to facilitate trading in securities, and create the mechanism for clearing and settlement of trades in a risk-minimising manner.

Elements and Participants of the Financial System: Part 2

What is the responsibility of the credit rating services?

The Financial System Overview

Lesson Excerpts

The Financial System Overview

The Financial System Overview

When a bank makes a new loan, a new deposit is created; this requires a topping up of reserves (R), and this is provided by the central bank.

The Financial System Overview

The money creation element of the financial system is a crucial one in terms of the supply of capital / funding when required by economic agents and of course in terms of monetary policy.

The Financial System Overview

Key Interest rate:

Non-Financial Lenders and Borrowers

Lesson Excerpts

Non-Financial Lenders and Borrowers

Non-Financial Lenders and Borrowers

It is highly improbable that the savings of (non-financial) economic units will be matched by desired investment.

Some economic units will find that their savings out of income will exceed their planned investment, while others will find themselves in a situation where their savings are insufficient to meet desired internal investment.

Non-Financial Lenders and Borrowers

For purposes of these accounts, central banks usually define these four sectors as follows: Household Sector Corporate Sector Government Sector Foreign Sector

Household Sector This sector consists of individuals and families, but also includes private charitable, religious and non-profit bodies serving households.

Non-Financial Lenders and Borrowers

It includes unincorporated businesses such as farmers, retailers and professional partnerships, as the transactions of these businesses cannot be separated from the personal transactions of their owners.

Non-Financial Lenders and Borrowers

Corporate Sector This sector comprises all companies not classified as financial institutions and therefore covers business enterprises directly or indirectly engaged in the production and distribution of goods and services.

Non-Financial Lenders and Borrowers

Government Sector This sector consists of the central government, provincial governments (where they exist), local authorities, and non-financial public enterprises.

Non-Financial Lenders and Borrowers

Foreign Sector This sector comprises all organisations, persons and assets resident or situated in the rest of the world.

Non-Financial Lenders and Borrowers

Which of the following are considered to be in the government sector?

Introduction to the Financial System: Summary

Lesson Excerpts

Introduction to the Financial System: Summary

Introduction to the Financial System: Summary

Non-financial lenders and borrowers

Introduction to the Financial System: Summary

Financial intermediaries

Introduction to the Financial System: Summary

Financial instruments

Introduction to the Financial System: Summary

Creation of money

Introduction to the Financial System: Summary

Financial markets

Introduction to the Financial System: Summary

Price discovery

Introduction to the Financial System: Summary

In addition, there are also allied participants / players / entities in the system, without which the system would not function efficiently.

Introduction to the Financial System: Summary

Participants In The Financial System Brokers and dealers (collectively: broker-dealers) Fund managers Credit rating agencies Financial exchanges Financial regulators

Non-financial lenders and borrowers

Introduction to the Financial System: Summary

Household sector

Introduction to the Financial System: Summary

Government sector

Introduction to the Financial System: Summary

Corporate sector

Introduction to the Financial System: Summary

Foreign sector

Introduction to the Financial System: Summary

Introduction to the Financial System: Quiz

Lesson Excerpts

Introduction to the Financial System: Quiz

Introduction to the Financial System: Quiz

Introduction to the Financial System Course Author

UNITARThe United Nations Institute for Training and Research (UNITAR) is a dedicated training arm of the United Nations system.

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