1. Introduction Financial System Financial Environment Financial Instruments Financial Institutions Financial Markets

2. I. Financial Environment A. Economic Environment Microeconomic EnvironmentMicroeconomic Environment Macroeconomic environmentMacroeconomic environment B. Cultural Environment (Socio-Demographic Environment)

3. C. Regulatory Environment Supervisory Issues Supervisory Issues Structural Issues Structural Issues – Intra-Industry – Inter-Industry D. Technological Environment

4. II. Financial Instruments A. Assets An asset is a possession that has value in an exchange.

5. TypesTypes –Tangible Asset A tangible asset is an asset whose value depends on particular physical properties.

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

7. Roles of Financial Assets Roles of Financial Assets – Raising funds for acquiring tangible assets – Redistributing investment risk.

8. B. Money Definition of MoneyDefinition of Money –Legal Definition of Money –Functional Definition of Money

9. Monetary StandardMonetary Standard –Commodity Standard °Single Commodity Standard °Multiple Commodity Standard –Metallism °Compensated Standard

10. °Non-Compensated Standard ¤Monometallism Gold Standard Silver Standard ¤Bimetallism Parallel Bimetallism Limping Bimetallism Symmetallism ¤Polymetallism –Fiat Standard (Credit Money, Managed Money)

11. Components of MoneyComponents of Money

12. M1M1 –Currency In circulation –Travelers Checks –Demand Deposits –Checkable Deposits °Now Accounts °ATS (Automatic Transfer Service) Accts. °Share Draft Accounts

13. M2M2 –M1 –Overnight RPs –Overnight Eurodollars –Savings Deposits –Small Time Deposits (< $100,000) –Small Denomination Term RPs (< $100,000)

14. M3M3 –M2 –Large Time Deposits –Large Denomination Term RPs –Term Eurodollars

15. L –M3 –U.S. Savings Bonds –Short-Term Treasury Securities –Commercial Paper –Bankers Acceptances –Money Market Funds

16. 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

17. Direct Claim and Indirect Claim InstDirect Claim and Indirect Claim Inst Direct claim securities have claims against the cash flows produced by real assets, hence values tied directly to those real assets. The values of indirect claim securities or derivatives, are derived from the value of some other assets.

18. III. Financial Institutions A. Definition

19. B. Private Institutions IntermediariesIntermediaries –Depository Institutions –Contractual Institutions –Investment Institutions –Borrowing Institutions Non-IntermediariesNon-Intermediaries –Portfolio Management Institutions –Others

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

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

22. IV. Financial Markets A. Market Real MarketReal Market –Product Market –Factor Market Financial MarketFinancial Market

23. 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

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

25. D. Capital Markets Fixed-Income Capital Markets Fixed-Income Capital Markets – Treasury Notes and Bonds – Federal Agency Securities – Municipal Bonds – Corporate Bonds – Mortgaged-Backed Securities – Preferred Stocks

26. Stock MarketsStock Markets –National Exchanges –Regional Exchanges –Over-the-Counter Markets

27. E. Derivative Markets Forward ContractsForward Contracts FuturesFutures OptionsOptions SwapsSwaps

28. F. Market Trends l Globalization l Securitization l Credit Enhancement l Financial Engineering

29. References n Ray, Russ. “An Introduction to Finance on the Internet.” Financial Practice and Education, 6 (2), Fall/Winter 1996, 95-101. n Pettijohn, James B. “A Guide to Locating Financial Information on the Internet.” Financial Practice and Education, 6 (2), Fall/Winter 1996, 102-110. n Herbst, Anthony F. “The Ways in Which the Financial Engineer Can Use the Internet.” Financial Practice and Education, 6 (2), Fall/Winter 1996, 111-121.