Financial System: An Introduction

This book serves as an introduction to the financial system. The financial system has six elements: lenders & borrowers, financial intermediaries, financial instruments, financial markets, money creation and price discovery. It describes the non-financial surplus and deficit economic units (ie lenders and borrowers), and direct (between ultimate lenders and borrowers) and indirect (via the diverse financial intermediaries) financing. The financial markets (money, bond, forex, share/ stock, etc) are given much attention as the avenues for bringing together lenders, borrowers and financial intermediaries. This is where price discovery takes place. Money creation is afforded special attention because this is a significant element of the financial system and the economy in that it is here where new debt instruments are created. This takes place in the money market, and it is here where the central bank intervenes in its function as the financial system referee.

Content

1. Lenders & borrowers
   1. Learning objectives
   2. Introduction
   3. Defining the financial system
   4. Non-financial lenders and borrowers
   5. Summary
   6. Bibliography
2. Financial intermediaries
   1. Learning objectives
   2. Introduction
   3. Financial intermediation
   4. Economic functions of financial intermediaries
   5. Financial intermediaries: classification and relationship
   6. Financial intermediaries: intermediation functions
   7. Summary
   8. Bibliography
3. Financial instruments
   1. Learning objectives
   2. Introduction
   3. Financial instrument types
   4. Share instruments
   5. Debt instruments
   6. Deposit instruments
   7. Instruments of investment vehicles
   8. Derivative instruments
   9. Summary
   10. Bibliography
4. Financial markets
   1. Learning objectives
   2. Introduction
   3. Money market
   4. Bond market
   5. Share market
   6. Foreign exchange market
   7. Derivative markets
   8. Organisational structure of financial markets
   9. Financial market participants & short selling
   10. Clearing and settlement
   11. Bibliography and references
5. Money creation
   1. Learning objectives
   2. Introduction
   3. What is money?
   4. Measures of money
   5. Monetary banking institutions
   6. Money and its role
   7. Uniqueness of banks
   8. The cash reserve requirement
   9. Money creation does not start with a bank receiving a deposit
   10. Money creation is not dependent on a cash reserve requirement
   11. Is “money supply” a misnomer?
   12. The money identity and the creation of money
   13. Role of the central bank in money creation
   14. How does a central bank maintain a bank liquidity shortage?
   15. Bibliography
6. Price discovery
   1. Learning objectives
   2. Introduction
   3. What is price discovery?
   4. Price discovery and information
   5. The mechanics of price discovery
   6. Role of central bank in price discovery
   7. Composition of interest rates
   8. Role of interest rates in security valuation
   9. Market efficiency
   10. Bibliography and references
7. Endnotes