5 - Money, foreign exchange, finance

• What is Finance? Finance is the monetary resources comprising debt and ownership funds of the state, company or person.

• What is Financial System? The financial system basically deals with the financial transactions and the exchange of money between savers, investors, lenders and borrowers.

• What are the functions of a financial system? The financial system in general tries to integrate these stakeholders like the savers, investors, lenders for borrowers and other market participants who are existing in this particular system for the transaction purpose and also to exchange the money between them.

• How are the main types of financial institutions categorized ? Describe each one. There are different kind of institutions basically work in the system some institutions are:

1. Banking: Banks provide transaction services, Create deposits or credit, Subject to legal reserve requirements, Can advance credit by creating claims against themselves. Banks are creators of credit. 
2. Non-banking: Life Insurance corporations, Mutual and other non-banking Financial Companies.  Non-banking are purveyors of credit. 
3. Intermediaries: Intermediate between savers and investors, they lend money as mobilising savings, their liabilities are towards the ultimate savers while their assets are from the investors or borrowers, all banking institutions are intermediaries. 
4. Non-intermediaries: Institutions do the loan business but their resources are not directly obtained from the savers. 

• Which are the main classes of financial instruments issued in a financial system? Describe them in detail.

1. Cash Instruments: The values of cash instruments are directly influenced and determined by the markets. These can be securities that are easily transferable.
2. Derivative Instruments: They are assets that have agreements and limitations of both parts.

• What are the distinctions between various types of financial markets according to their function? Explain them.

          Money and Capital Markets

• This convencional distinction is based on the differences in the period of maturity of financial assets issued in these markets.
• While the money markets deal in the short-term claims, the capital markets does so in the long-term claims, the capital markets does so in the long-term claims.

         Primary and Secondary Markets

• Primary markets deal in the new financial claims or new securities.
• Secondary markets deal in securities already issued or existing to outstanding.

• What does the “flow of funds” refer to? Explain in detail. The flow of funds is the amount of money, in cash and in credit, flowing inside and outside a business. A positive flow of funds is more money coming out and a negative flow is less entering than the necessary to cover the expenses of the business.