Financial System By-Arbin Shrestha

What is Financial System? System that allows the transfer of money between savers and investors and borrowers. “A set of complex and closely interconnected financial institutions, markets, instruments, services, practices, and transactions”- Guruswamy

Surplus Agents Households, Companies, Government Deficit Agents Households, Companies, Government Financial Securities Financial Intermediaries Funds Debt-equity Loans Interest, profits, dividends Capital gains/losses

 Financial Markets  Financial Intermediaries -Retail/Commercial Banks -Investment Banks -Insurance Firms -Mutual Funds -Credit Rating Agencies  Financial Instruments  Regulators

Financial Instruments (Securities) Financial Instrument is a tradable financial asset, classified as equity based, representing ownership of an asset, or debt based, representing loan made by the holder (investor) to the issuer of the asset. Stocks (equity) Bonds Debentures Treasury Bills Commercial Paper Certificate of Deposit Repos

Financial Markets ‘ any marketplace where buyers and sellers participate in the trade of financial assets such as equities, bonds, currencies and commodities.’

Types of Financial Markets  Capital Market -Primary Market -Secondary Market  Money Market

Capital Market A sector of financial market where long term financial instruments issued by corporations and government trade. Primary Market (new issues market) Where firm offers equities (shares), bonds to the general public for the first time. -IPO -Private Placement

Secondary Market Market in which previously issued securities are traded among investors. Auction Market Dealer Market -Stock Exchanges, OTC New York Stock Exchange (NYSE) London Stock Exchange (LSE) Bombay Stock Exchange (BSE) Nepal Stock Exchange (NEPSE)

Money Markets  Markets for short term loanable funds for not exceeding one year.  Financing current business operations, working capital requirements.