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Financial context of business – I

Introduction – the financial system

1.1 The financial system

 Financial markets e.g. stock exchanges, money markets.

 Financial institutions e.g. banks, building societies,

 Financial assets and liabilities e.g. mortgages, bonds, equity shares

1.2 Financial markets

 Capital markets – stock-markets for shares and bond markets.

 Money markets – short-term (< 1 year) debt financing and investment.

 Commodity markets – e.g. oil, metals and agricultural produce.

 Derivatives markets – instruments for the management of financial risk

 Insurance markets – facilitate the redistribution of various risks.

 Foreign exchange markets – trading foreign exchange.

1.3 Financial intermediaries

Financial intermediaries have a number of important roles.

 Risk reduction

 Aggregation

 Maturity transformation

 Financial intermediation

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