10.

• Financial System


  Complex, comprising many different types of financial institutions, including banks, insurance companies, mutual funds, finance companies and investment banks
• Financial Institutions


  • Banking institutions (Central Bank, Commercial Bank)
  • Non-banking institutions
• Financial Intermediaries


  Institutions that borrow funds from people who have saved and in turn make loans to others
• Banking Institutions


  • Commercial Bank (CB)
  • CB offers: bank credit cards, safe-deposit boxes, transfer of funds between banks, financial advice, traveller's checks
• Commercial Bank (CB)


  Profit-making institution that holds deposits of individuals and businesses in checking and saving accounts and then uses these funds to make loans to individuals, businesses and government
• SIPS


  Slovak Interbank Payment System
• Central Bank


  Responsible for the conduct of monetary policy
• Monetary Policy


  Management of money and interest rates
• Non-banking Financial Institutions


  • Insurance companies
  • Pension Funds
  • Brokerage Houses
  • Commercial and consumer finance companies
• Insurance


  A written contact that transfers the risk of loss from the insured to the insurer, according to the terms specified in the context
• Pension Funds


  Provide for the retirement needs of its members or employees, the fund uses a pool of money created by contributions of the members, the employer, or both, invest accumulated finances
• Brokerage Houses


  Buy and sell stocks, bonds, and other assets for their customers
• Commercial and consumer finance companies

  Offer short term loans, typically at a higher interest rate, to businesses and individuals unable to obtain loans elsewhere
• Financial Markets


  Markets in which funds are transferred from people who have a surplus of available funds to people who have a shortage of available funds
• Types of Financial Markets

  • Primary market
  • Secondary market
  • Money market
  • Capital market
• Primary market


  New issues of a security (bonds or stocks) are sold to initial buyers by the corporation or government agency which borrow the fund
• Secondary market


  Financial market in which securities that have been previously issued can be resold
• Money market


  Financial market in which only short-term debt instruments are traded
• Capital market


  Market, in which longer-term debt and equity instruments are traded
• Foreign Exchange Market


  Conversion of funds from the currency in the country of origin into the currency of the country to which they are going, exchange rate (the rate at which one country's can be exchanged for that of another country)
• Money Market Instruments


  • Treasury Bills (T-Bills)
  • Commercial Papers
  • Certificates of Deposit (CDs)
• Treasury Bills (T-Bills)


  Short term debt instruments (local, country, state governments), pay a set amount at maturity and have no interest payments, pay interest by initially selling at a discount, the safest of all money market instruments (almost no possibility of default)
• Commercial Papers


  Short term debt instruments, issued by large banks and well-known corporations
• Certificates of Deposit (CDs)


  Interest-bearing notes issues by commercial bank or brokerage companies, at maturity pay back the original purchase price, pays a fixed interest rate on money held for an agreed period of time
• Capital Market Instruments


  • Debt capital
  • Equity capital
• Debt capital


  Funds obtained through borrowing
• Equity capital


  Funds provided in exchange for some ownership in the company
• Stocks


  Equity claims on the net income and assets of a corporations
• Mortgages


  Loans to households or firms to purchase housing, land, or other real structures, where the structure or land serves as collateral for the loans
• Corporate Bonds


  Long-term bonds issued by corporations with very strong credit ratings, the typical corporate bond sends the holder an interest payment twice a year and pays off the face value the bond matures
• Government Bonds


  Intermediate-term bonds (with initial maturities from 1 to 10 years), long-term bonds (with initial maturities greater than 10 years issued to finance deficit of the government)
• European System of Central Banks (ESCB)

  Comprises the ECB and the national central banks (NCBs) of all EU Member States whether they have adopted the euro or not
• Eurosystem


  Comprises the ECB and the NCBs of those countries that have adopted the euro. The Eurosystem and the ESCB will co-exist as long as there are Eu Member States outside the euro area
• Euro area


  EU countries that have adopted the euro