Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Topic 1
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Lecture Topic
Course overview and Introduction to
Interest rates
Money Markets
Activity
Tutorial 1
Financial Markets
No Tutorial
1h30 Money Markets Practice Dealing Session.
No Tutorial
1h30 Money Markets Dealing Session.
No Tutorial
1h30 FX Practice Dealing Session.
No Tutorial
1h30 FX Dealing Session.
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10
Assessment Deadline
Quiz 3: FX
Derivatives Markets
Quiz 4: Bonds
Financial Institutions
Quiz 5 : Equity
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Recap
Tutorial
12
Revision
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Topic 1 - Contents
1.
2.
3.
4.
5.
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2.3
Financial assets
Return or yield
Total financial compensation received from an
investment expressed as a percentage of the
amount invested
Risk
Probability that actual return on an investment
will vary from the expected return (or variation
in expected return)
Liquidity
Ability to sell an asset within reasonable time at
current market prices and for reasonable
transaction costs
Debt
Equity
Hybrid
Derivatives
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Derivatives
Financial assets whose value is derived from
another financial asset, rate or index. Eg.
Forward contracts
Futures
Options
Swaps
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Secondary markets
Financial securities
Financial assets which can be traded in
secondary markets - eg. shares and bonds.
Examples of financial assets which are not
financial securities are bank deposits and loans.
But they can be securitized, i.e. transformed into
financial securities that trade like any other:
Housing loans in US securitized into CDOs
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Capital markets
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Overview
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Indirect finance
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Direct finance
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Indirect finance
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Disadvantages of financial
intermediation
Increased cost of funds for borrowers
Reduced return from lending for savers
Why? Institutions take a net interest margin
Less likely for secondary financial assets (e.g.
bank deposits) to be securitised (i.e. Transformed
into financial securities) so that they can be
traded in a secondary market. Primary financial
assets (e.g. Housing loans can be securitized into
CDOs)
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Overview
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Institutions features
Total Assets (Percentage Share) of Financial Institutions
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Institutions features
Banks continue to dominate the financial system
Significant changes have occurred in the relative
importance of:
Building societies
Money market corporations
Finance companies
Superannuation funds
Public unit trusts
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Commercial banks
Commercial banks are the largest group of
financial institutions within a financial system.
The core business of banks is often described as
the gathering of savings (deposits) in order to
provide loans for investment.
They also provide a wide range of off-balancesheet transactions such a underwriting, issue of
derivatives or execute Fx transactions.
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Managed funds
The main types of managed funds are
cash management trusts, public unit trusts,
superannuation (pension) funds, statutory funds of life
offices, common funds and friendly societies.
The large pool of funds is then used to purchase both
primary and secondary market securities
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Finance companies
Finance companies make loans, provide lease
finance and factoring options to customers in the
household and business sectors
Funds are raised by issuing financial securities,
such as commercial papers, medium-term notes
and bonds, directly into money markets and
capital markets
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Overview
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Economic markets
Circular Flow
Resource markets
Output markets
(goods & services)
Financial markets
Source: "Interactive Economics 2000" is copyright Michael Jarrett 2000
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Economic objectives
Economic growth
Full employment
Price stability
External balance
Efficient allocation of resources
Equitable distribution of income and wealth
The role of the financial system is to facilitate the
performance of the overall economic system.
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5. Government policy
In terms of government regulation, the last 50
years can be divided into the following distinct
periods:
Regulation (pre-1980s)
Deregulation (1980s)
Post-deregulation (1990s onward)
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