Unit 1

An Overview of Financial System and Financial Markets

LEARNING OBJECTIVES

After studying this unit, you should be able to:

• define the organization of financial system;

• outline the basic components and structure of financial system;

• enumerate the main participants of financial system;

• define terminology related to financial system;

• state the role of financial markets and financial institutions.

Starting-up

Exercise 1. A financial system is the system of financial institutions and markets in a country that mobilize monetary resources, distribute the resources in the process of financing and crediting, and exercise financial control.

a) Entitle the structural components of the scheme below using the words from table 1 (3 words are odd);

Table 1

Institutions	System	Purchasers	Instruments
Markets	Taxation	Services	Government

b) Split the words from table 2 into 4 categories to complete the scheme above.

Table 2

A bank	Capital market	Exchanges market	A pension fund	Allow financial transactions
Debt and equity markets	Provide internet banking system	Keeping money safe while also allowing withdrawals when needed	Intermediation or advisory services	An insurance company
A loan	A credit union	Secondary market	A bond	A deposit
Primary market	Currency exchange	Provide loans	An investment fund	Money market

3. What else can you add in order to complete the table?

Is financial system complex? Why?

Why is financial system important?

Exercise 2. Comment on the following quotations. Which of them do you agree with? Which do you disagree with? Why?

1. “If you don't have a functioning financial system the world economy won't be revived¹.” Manmohan Singh

2. “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Henry Ford

3. “The modern banking system manufactures money out of nothing.” Josiah Stamp

¹ - відроджувати, обновляти

Exercise 3. The financial system matches savers and borrowers through two channels: (1) financial intermediaries and (2) financial markets. These two channels are distinguished by how funds flow from savers, or lenders, to borrowers and by the financial institutions involved.

a) Comment on the following scheme using the word-combinations from the table below.

to lend excess funds	the arrows show that funds flow from … to …	the most important borrower-spenders
to channel funds	to borrow to finance	to borrow funds
to have a shortage of funds	the principal lender-savers	to have surplus funds