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Financial Systems


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Financial System consist of...
... money - banking - financial institution - financial markets both money and stock
Financial System handles...
... regular transactions such as retail, wholesale, payment of all types of bills - wages and salaries
Components of the Financial System
remember as M-BFFT (mega buffet)
M
Money
B
Banks and Development Financial Institution
F
Financial instruments - Capital & Money Market Instruments
T
The Central Bank - like SBP
Reasons for government intervention
to achieve macroeconomic stabilisation objectives
Regulation: 1940s - 1970s
Monetary policy controls of RBA (bank interest rates, bank lending quantitative and qualitative)
Deregulation: 1980s
MOM became only instrument of monetary policy, entry of new banks and increase in competition
Implications of FM globalisation
Exposure to foreign competition provides for more efficient resource allocation and promotes innovation in the domestic economy.
Conglomeration
the development of large financial institutions providing a wide range of financial products and services to meet their customers' needs rather than a restricted range such as traditional banking products or insurance products
Market widening
Market widening refers to increasing the number and types of business organisations that provide financial products and services.
Disintermediation
increased reliance by borrowers and lenders on direct rather than indirect (intermediated) finance.
Securitisation
the process of raising funds by selling financial securities, such as bonds and discount securities, rather than taking out a loan.
Bank
any body corporate which is granted authority as a bank under the Banking Act, plus enterprises established under State government legislation to carry on the business of banking.
Off-balance-sheet business
a transaction that is conducted by a bank that is not recorded on the balance sheet