IntroductionIntroduction

Financial SystemFinancial SystemFinancial EnvironmentFinancial Environment

Financial InstrumentsFinancial Instruments

Financial InstitutionsFinancial Institutions

Financial MarketsFinancial Markets

I. Financial Environment I. Financial Environment

A. Economic EnvironmentA. Economic Environment• Microeconomic EnvironmentMicroeconomic Environment• Macroeconomic environmentMacroeconomic environment

B. Cultural EnvironmentB. Cultural Environment(Socio-Demographic Environment)(Socio-Demographic Environment)

C. Regulatory EnvironmentC. Regulatory Environment• Supervisory IssuesSupervisory Issues• Structural IssuesStructural Issues

– Intra-IndustryIntra-Industry– Inter-IndustryInter-Industry

D. Technological EnvironmentD. Technological Environment

II. Financial InstrumentsII. Financial Instruments

A. AssetsA. Assets

An asset is a possession that has value An asset is a possession that has value in an exchange.in an exchange.

• TypesTypes–Tangible AssetTangible Asset

A tangible asset is an asset whose value A tangible asset is an asset whose value depends on particular physical properties .depends on particular physical properties .

– Intangible AssetIntangible Asset

An intangible asset represents a An intangible asset represents a legal claim to some future benefit.legal claim to some future benefit.° Trade Marks, Services, etc. Trade Marks, Services, etc. ° Financial AssetsFinancial Assets

• Roles of Financial AssetsRoles of Financial Assets– Raising funds for acquiring tangible Raising funds for acquiring tangible

assetsassets– Redistributing investment risk.Redistributing investment risk.

B. MoneyB. Money• Definition of MoneyDefinition of Money

– Legal Definition of MoneyLegal Definition of Money– Functional Definition of MoneyFunctional Definition of Money

• Monetary StandardMonetary Standard– Commodity StandardCommodity Standard

° Single Commodity StandardSingle Commodity Standard° Multiple Commodity StandardMultiple Commodity Standard

– MetallismMetallism° Compensated StandardCompensated Standard

° Non-Compensated StandardNon-Compensated Standard¤ MonometallismMonometallism

Gold StandardGold Standard

Silver StandardSilver Standard¤ BimetallismBimetallism

Parallel BimetallismParallel Bimetallism

Limping BimetallismLimping Bimetallism

SymmetallismSymmetallism¤ PolymetallismPolymetallism

– Fiat Standard (Credit Money, Managed Money)Fiat Standard (Credit Money, Managed Money)

• Components of MoneyComponents of Money

• M1M1– Currency In circulationCurrency In circulation– Travelers ChecksTravelers Checks– Demand DepositsDemand Deposits– Checkable DepositsCheckable Deposits

° Now AccountsNow Accounts° ATS (Automatic Transfer Service) Accts.ATS (Automatic Transfer Service) Accts.° Share Draft AccountsShare Draft Accounts

• M2M2– M1M1– Overnight RPsOvernight RPs– Overnight EurodollarsOvernight Eurodollars– Savings DepositsSavings Deposits– Small Time Deposits (< $100,000)Small Time Deposits (< $100,000)– Small Denomination Term RPs (< $100,000)Small Denomination Term RPs (< $100,000)

• M3M3– M2M2– Large Time DepositsLarge Time Deposits– Large Denomination Term RPsLarge Denomination Term RPs– Term EurodollarsTerm Eurodollars

• LL– M3M3– U.S. Savings BondsU.S. Savings Bonds– Short-Term Treasury SecuritiesShort-Term Treasury Securities– Commercial PaperCommercial Paper– Bankers AcceptancesBankers Acceptances– Money Market FundsMoney Market Funds

C. Other Financial Instruments C. Other Financial Instruments • Promissory Notes and DraftsPromissory Notes and Drafts• Debt and Ownership InstrumentsDebt and Ownership Instruments• Convertible and Non-Convertible Inst.Convertible and Non-Convertible Inst.• Short-, Intermediate-, and Long-term Inst.Short-, Intermediate-, and Long-term Inst.• Marketable and Non-Marketable Inst.Marketable and Non-Marketable Inst.• Secured and Unsecured InstrumentsSecured and Unsecured Instruments

• Direct Claim and Indirect Claim InstDirect Claim and Indirect Claim Inst

Direct claim securities have claims against the Direct claim securities have claims against the cash flows produced by real assets, hence values cash flows produced by real assets, hence values tied directly to those real assets.tied directly to those real assets.

The values of indirect claim securities or derivatives, The values of indirect claim securities or derivatives, are derived from the value of some other assets.are derived from the value of some other assets.

III. Financial Institutions III. Financial Institutions

A. DefinitionA. Definition

B. Private InstitutionsB. Private Institutions• IntermediariesIntermediaries

– Depository InstitutionsDepository Institutions– Contractual InstitutionsContractual Institutions– Investment InstitutionsInvestment Institutions– Borrowing InstitutionsBorrowing Institutions

• Non-IntermediariesNon-Intermediaries– Portfolio Management InstitutionsPortfolio Management Institutions– OthersOthers

C. Public InstitutionsC. Public Institutions• Government Sponsored Credit InstitutionsGovernment Sponsored Credit Institutions• Government Financial AgenciesGovernment Financial Agencies• Regulators and Service ProvidersRegulators and Service Providers

D. International Institutions D. International Institutions • The International Monetary FundThe International Monetary Fund• The World BankThe World Bank• The Bank for International SettlementsThe Bank for International Settlements

IV. Financial MarketsIV. Financial Markets

A. MarketA. Market• Real MarketReal Market

–Product MarketProduct Market–Factor MarketFactor Market

• Financial MarketFinancial Market

B. Types of Financial Markets B. Types of Financial Markets • International and Domestic MarketsInternational and Domestic Markets• Organized, OTC, Third and Fourth MarketsOrganized, OTC, Third and Fourth Markets• Primary and Secondary MarketsPrimary and Secondary Markets• Money and Capital MarketsMoney and Capital Markets• Spot and Derivative marketsSpot and Derivative markets

C. Money Markets C. Money Markets • Treasury BillsTreasury Bills• Certificates of DepositCertificates of Deposit• Commercial PaperCommercial Paper• Bankers’ AcceptancesBankers’ Acceptances• EurodollarsEurodollars• Repurchase AgreementsRepurchase Agreements• Federal FundsFederal Funds

D. Capital MarketsD. Capital Markets

• Fixed-Income Capital MarketsFixed-Income Capital Markets–Treasury Notes and BondsTreasury Notes and Bonds– Federal Agency SecuritiesFederal Agency Securities– Municipal BondsMunicipal Bonds– Corporate BondsCorporate Bonds– Mortgaged-Backed SecuritiesMortgaged-Backed Securities– Preferred StocksPreferred Stocks

• Stock MarketsStock Markets– National ExchangesNational Exchanges– Regional ExchangesRegional Exchanges– Over-the-Counter MarketsOver-the-Counter Markets

E. Derivative MarketsE. Derivative Markets• Forward ContractsForward Contracts• FuturesFutures• OptionsOptions• SwapsSwaps

F. Market TrendsF. Market Trends GlobalizationGlobalization SecuritizationSecuritization Credit EnhancementCredit Enhancement Financial EngineeringFinancial Engineering

ReferencesReferences

Ray, Russ. “An Introduction to Finance on the Ray, Russ. “An Introduction to Finance on the Internet.” Internet.” Financial Practice and EducationFinancial Practice and Education, 6 (2), , 6 (2), Fall/Winter 1996, 95-101.Fall/Winter 1996, 95-101.

Pettijohn, James B. “A Guide to Locating Financial Pettijohn, James B. “A Guide to Locating Financial Information on the Internet.” Information on the Internet.” Financial Practice and Financial Practice and EducationEducation, 6 (2), Fall/Winter 1996, 102-110., 6 (2), Fall/Winter 1996, 102-110.

Herbst, Anthony F. “The Ways in Which the Financial Herbst, Anthony F. “The Ways in Which the Financial Engineer Can Use the Internet.” Engineer Can Use the Internet.” Financial Practice Financial Practice and Educationand Education, 6 (2), Fall/Winter 1996, 111-121., 6 (2), Fall/Winter 1996, 111-121.