1. THE ROLE OF THE FINANCIAL SYSTEM
•
1203AFE Money, Banking & Finance
•
Presentation title: The role of the financial system
Tutor: Eliot Sanft
Student name: Alexander Daniel Gonzalez
Student Number: GONAD1403
Due date: 20th Nov 2015
Total presentation: 5 slides and minimum 5
minutes time.

2. THE FLOW OF FUNDS
SURPLUS
SPENDING
HOUSEHOLDS
BUSINESSES
GOVERNMENT
INCOME
> (greater)
EXPENDITURE
HOUSEHOLD
S
BUSINESSES
GOVERNMEN
T
DEFICIT
SPENDING
INCOME
< (less)
EXPENDITURE
SUPPLIERS OF FUNDS
(SSUs):
DEMANDERS OF FUNDS
(DSUs)
FINANCIAL
MARKETS
FINANCIAL
MARKETS
FUNDS (money)
F
U
N
D
S
FINANCIAL INSTRUMENTS (F.I.)
F
.
I
.

3. FINANCIAL CLAIMS AND SETTLEMENT
TRANSACTIONS
•
FINANCIAL CLAIMS •
SETTLEMENT TRANSACTIONS
DEBTS FUNDS
EQUITY FUNDS
LOAN
ACQUIRE
OWNERSHIP SHARE
CREDIT
RISK
UNEXPECTED
RETURN OF
MONEY
A key role in the financial system is to provide
the mechanism for these settlements to occur
through what is known as the payment system.
BRANCHES &
NON-BRANCHES
BANK@POST OUTLET
E
F
T
P
O
S
A
T
M

4. INFORMATION FOR DECISION
MAKING
Credit rating agencies
They have received significant criticism for
several reasons:
1) Concerns over conflict of interest,
3) Errors in ratings, which have subsequently
being depreciated.
5) They are too slow, or reluctant to
downgrade organisations.
7) Small number of them and the power and
influence this provides them.
5) Lack of transparency in their processes,
methods and relationship with rated entities.

5. TRANSFER AND MANAGING RISK AND
APPROACHES TO DEAL WITH
CONTRACTS PROBLEMS
TRANSFER AND MANAGING RISK •
MANAGING INCENTIVE PROBLEMS
There are different mechanisms such as insurance products,
securitisation and derivate problems.
The financial system also has a role in mitigating
incentive issues that arise in financial contracts. Three
key examples of that are:
- Information asymmetry which occurs when the
contracting parties do not have equal access to relevant
information, therefore one part is in advantage.
- Adverse selection: which occurs less than an optimal
outcome is achieved due to parties having asymmetric
information.
- Moral hazard which occurs where a party is insulated
from risk behaves differently to the way they would
were they not insulated.

6. FINANCIAL MARKET EFFICIENCY AND ITS
IMPORTANCE IN ASIA
-
Having an efficient and effective
financial system is critical for a
modern economy.
-
Allocational efficiency is when
funds are allocated to the highest
value use,
-
Informational efficiency in which
prices reflect all relevant
information about securities, and
-
FINANCIAL MARKET EFFICIENCY - Improving allocation efficiency and diversifying risk.
-
However, some countries in Asia were more affected by GFC
than others.
-
India, which had a more calibrated approach, firstly opening
of the capital account and subsequently the financial sector.
-
Evidence suggests that the greatest gains are obtained from
openness to foreign direct investment followed by portfolio
investment.
-
Benefits resulting from external debt flows are questionable
UNTIL greater domestic financial market development has
taken place.
IMPORTANCE IN ASIA

7. REFERENCES LIST
•
Asongu, S. A. (2012). Globalisation, financial crisis and contagion: Time-
dynamic evidence from financial markets of developing countries. Journal
of Advanced Studies in Finance, 3(2), 131-139.
•
Kidwell, D.S., Brimble, M., Mazzola, P., Basu, A., Docherty, P.& Lenten, L.
(2014). Financial markets, institutions and money (3rd ed.). Wiley. Milton,
QLD.