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Chapter 1 Notes

This chapter emphasizes the significance of studying financial markets and institutions, highlighting their roles in resource allocation, economic decision-making, and development. Financial markets facilitate capital formation, liquidity, and risk transfer, while financial institutions act as intermediaries that mobilize savings and provide diverse services. An effective approach to studying these topics includes understanding key concepts, analyzing real-world applications, and utilizing case studies.

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42 views2 pages

Chapter 1 Notes

This chapter emphasizes the significance of studying financial markets and institutions, highlighting their roles in resource allocation, economic decision-making, and development. Financial markets facilitate capital formation, liquidity, and risk transfer, while financial institutions act as intermediaries that mobilize savings and provide diverse services. An effective approach to studying these topics includes understanding key concepts, analyzing real-world applications, and utilizing case studies.

Uploaded by

VI Tomon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER 1: RATIONALE IN STUDYING FINANCIAL MARKETS AND

INSTITUTIONS

🔢 Expected Learning Outcomes


After studying this chapter, you should be able to: 1. Understand the
importance of studying: - a. Financial Markets - b. Financial Institutions 2.
Explain briefly the role of: - a. Financial Markets - b. Financial Institutions 3.
Know the effective approach in studying financial markets and institutions

📃 Summary Notes
I. Importance of Studying Financial Markets and Institutions
 Financial Markets: These are systems that allow the buying and
selling of financial instruments such as stocks, bonds, and other
securities.
o Help allocate scarce resources efficiently.
o Influence individual, corporate, and national decision-making.
o Essential for understanding national and global economic
systems.
 Financial Institutions: These are intermediaries like banks,
insurance companies, and investment firms.
o Bridge the gap between savers and borrowers.
o Facilitate monetary flow within the economy.
o Play critical roles in economic development.
II. Roles of Financial Markets and Institutions
 Role of Financial Markets:
o Promote capital formation by enabling companies to raise
funds.
o Provide liquidity: Investors can buy/sell securities with ease.
o Help in price discovery for financial instruments.
o Transfer risk through derivative instruments.
 Role of Financial Institutions:
o Mobilize savings into productive investments.
o Reduce transaction and information costs.
o Offer diversified financial services to consumers.
o Ensure the stability of the financial system.
III. Effective Approach in Studying
 Understand key concepts and terms (e.g., interest rates, liquidity,
risk).
 Analyze real-world applications and examples.
 Use case studies and data interpretation to connect theory to
practice.

✏️Practice Quiz
True or False 1. Financial markets only influence businesses, not personal
wealth. (False) 2. Financial institutions serve as intermediaries between
savers and borrowers. (True) 3. One of the roles of financial markets is to
offer insurance services. (False)
Multiple Choice 1. Which of the following is NOT a function of financial
markets? a. Price discovery b. Risk transfer c. Direct lending without
intermediaries d. Providing liquidity
Answer: c
2. What is the main function of financial institutions?
a. Pricing securities
b. Offering stock exchanges
c. Facilitating savings and investments
d. Monitoring inflation Answer: c

Flashcards
Q: What are financial markets? A: Platforms where buyers and sellers trade
financial instruments like stocks and bonds.
Q: Give one importance of financial institutions. A: They help in channeling
funds from savers to borrowers, aiding economic growth.
Q: How do financial markets help in price discovery? A: They determine the
fair market value of securities through demand and supply interactions.
Q: Why study financial markets and institutions? A: To understand how
funds flow in an economy and to make informed financial decisions.

Next: Chapter 2 Summary Notes (Coming up!)

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