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Spring 2013 SEEM 2520 Tutorial 1 An Overview of The Financial System

This document provides an overview of financial markets and systems. It discusses several types of markets: direct finance markets where securities are traded directly between two parties, indirect finance markets where short-term securities are traded, debt markets for borrowing funds directly from financial markets, stock markets for new security issuances, primary markets for previously issued security trades, secondary markets for centralized security trading, and over-the-counter markets for long-term security trades. It also covers the functions of retail banks, commercial banks, and investment banks. Finally, it discusses the concepts of asymmetric information, moral hazard, adverse selection and provides examples of each.

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Amsalu Walelign
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33 views

Spring 2013 SEEM 2520 Tutorial 1 An Overview of The Financial System

This document provides an overview of financial markets and systems. It discusses several types of markets: direct finance markets where securities are traded directly between two parties, indirect finance markets where short-term securities are traded, debt markets for borrowing funds directly from financial markets, stock markets for new security issuances, primary markets for previously issued security trades, secondary markets for centralized security trading, and over-the-counter markets for long-term security trades. It also covers the functions of retail banks, commercial banks, and investment banks. Finally, it discusses the concepts of asymmetric information, moral hazard, adverse selection and provides examples of each.

Uploaded by

Amsalu Walelign
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Spring 2013 SEEM 2520 Tutorial 1

An Overview of the Financial Syste


Problem 1: Structure of Financial Markets
Direct Finance A market where securities are traded directed between
two parties
Indirect Finance A financial market where short-term securities are
traded
ond!Debt!Fi"ed Income Market A method for borrowers to borrow funds directl# from
financial markets
Stock!$%uit# Market A financial market where new issuance of securities
are sold
Primar# Market A financial market where securities that ha&e been
pre&iousl# issued are traded
Secondar# Market A market platform for central tradin' of securities
$"chan'e A method for borrowers to borrow funds from indirect
means such as throu'h a financial intermediar#
()*+(&er-the-counter, Market A financial market where lon'-term securities are
traded
Mone# Market A financial market where people bu# and sell debt
securities such as bonds
*apital Market A financial market where people bu# and sell compan#
stocks and financial deri&ati&es
Problem -: Functions of Financial Institutions
.hat can #ou do in a common
1/ retail bank0
-/ commercial bank0
1/ in&estment bank2
Also3 think of a few e"amples of such banks/
Problem 1: As#mmetric Information
.hen does as#mmetric information arise2
As#mmetric information results in two aspects3 moral ha4ards and ad&erse selections3 what are the
differences between them2
*an #ou think of one or two e"amples for each of them2
!otes on su"itting hoewor#$
Accordin' to the uni&ersit# 'uideline3 all essa#-t#ped assi'nments should be submitted to the
*5PID$+the *hinese 5ni&ersit# Pla'iarism IDentification $n'ine, s#stem/
6ou should submit homework with the followin' instructions:
1/ Submit a soft cop# to *5PID$ s#stem: http:!!cupide/cse/cuhk/edu/hk!cupide!
+6ou should click 7Assi'nment8 for the assi'nment t#pe,
-/ A receipt will be sent to #ou throu'h email upon submission to the s#stem/ Print the receipt and si'n
it/
1/ Print a hard cop# of #our homework/ Submit it to'ether with the si'ned receipt to the assi'nment bo"
of this course before the deadline/ 9ate submissions will ha&e marks deducted/ +--:; per da#,
If a person is cau'ht pla'iarism3 4ero mark will be 'i&en to that particular assi'nment3 and further actions
ma# be done/

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