BUSINESS FINANCE/

FINANCIAL MARKETS & INSTITUTIONS

[B Sc (Hons) in Management]

SEMINAR 7
The Financial System

1. Households
 Main providers of finance (or “Surplus Agents”)
2. Firms
 Users of finance (or “Deficit Agents”)

PREFERENCE :
Households Firms

Risk

Liquidity of funds

Maturity of funds

5. Governments
 Regulate the financial markets
 Influence financing and investment decisions by taxing the
financing choices differently
The Financial System

 Financial Intermediaries
 Role : transfer funds from Surplus Agents to Deficit Agents
 Basis :
– Economies of Scale

– Diversification

 Functions :
– Provision of payment mechanism

• Cheques

• Cards

• Wire transfers
The Financial System

 Financial Intermediaries
 Functions :

– Portfolio transformation

• Maturity/Liquidity

• Risk

• Asset/Volume

– Reduction of cost

• Search

• Contract

• Information
The Financial System
 Financial Markets (where financial assets are traded)
 Role :

– Pricing of assets

– Financial discipline

 Classification :

– Types of claims/assets

– Date of issuance

– Maturity

– Means of settlement

– Organisational structure of market

The Financial System

 Financial Markets (where financial assets are traded)

 Participants :

– Borrowers/lenders

– Brokers/agents

– Market makers/dealers

– Arbitrageurs

– Hedgers

– Speculators
The Financial System

Financial Markets

Deficit Agents Surplus Agents

Financial
Intermediaries

Regulated by Government
Singapore as a Financial Centre

 Prerequisites of a Financial Centre

 Strong domestic economy
 Stable currency
 Strategic location
 Presence of international institutions
 Active domestic banks

2. Banking Structure
 Full banks
 Wholesale banks
 Offshore banks
 Representation Offices
Singapore as a Financial Centre

1. Bank Business
 Interest Income
– Deposit
– Loans
 Fee-based Income
– Financial planning
– Corporate finance
– Bancasurrance
– Custodian
– Payment mechanism
– International trade
 Trading Income
Singapore as a Financial Centre

1. Central Bank (Roles & Responsibilities)

 Banker/financial agent of the government

 Banker of last resort to financial institutions

 Regulates of the banking and financial industry

 Stimulates the financial development of Singapore as a

financial centre

 Liaises with international organisations

 Provides important monetary and financial publication

FINANCIAL MARKETS &
INSTITUTIONS

Explain the main functions and

role that both banks and other
institutions play in the financial
system of Singapore, giving
examples where appropriate.