Finance School of management Funds flow: Secured credit Markets Poor Credit Risk Surplus Units Deficit Units Intermediaries uesTc
11 Finance School of Management Funds Flow: Secured Credit Markets Intermediaries Surplus Units Deficit Units Poor Credit Risk
Finance School of management The Functional Perspective on Financial System financial institutions generally differ across borders and also change over time The functional perspective Financial functions are more stable than financial institutions Institutional form follows function 6 The primary function of financial system is efficient resource allocation uesTc 12
12 Finance School of Management The Functional Perspective on Financial System ❖ Financial institutions generally differ across borders and also change over time. ❖ The functional perspective – Financial functions are more stable than financial institutions. – Institutional form follows function. ❖ The primary function of financial system is efficient resource allocation
Finance School of management Six Key Financial Functions Transferring resources across Time space Managing risk Clearing and Settling Payments Pooling resources and Subdividing shares Providing Information Dealing with the Incentive Problems uesTc 13
13 Finance School of Management Six Key Financial Functions – Transferring Resources across Time & Space – Managing Risk – Clearing and Settling Payments – Pooling Resources and Subdividing Shares – Providing Information – Dealing with the Incentive Problems
Finance School of management Transferring Resources across Time space To facilitate intertemporal transfers of resources Student loans Venture capitals .o To play an important role in shifting resources from one place to another The transfer of underused capital from Germany to R The retirement savings ofjapanese workers to be used to finance the house purchased by a young couple in the United states uesTc 14
14 Finance School of Management Transferring Resources across Time & Space ❖ To facilitate intertemporal transfers of resources – Student loans – Venture capitals ❖ To play an important role in shifting resources from one place to another – The transfer of underused capital from Germany to Russia – The retirement savings of Japanese workers to be used to finance the house purchased by a young couple in the United States
Finance School of management Quick Check Give an example of a transfer of resources over time that takes place through the financial System .o Is there a more efficient way for this transfer of resources to be handled? uesTc 15
15 Finance School of Management Quick Check ❖ Give an example of a transfer of resources over time that takes place through the financial system. ❖ Is there a more efficient way for this transfer of resources to be handled?