An Overview Of The Financial System23

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Preview 23

Function of Financial Markets 23

Structure of Financial Markets 25

Debt and Equity Markets 25

Primary and Secondary Markets 26

Exchanges and Over-the-Counter Markets 27

Money and Capital Markets 27

Internationalization of Financial Markets 28

International Bond Market, Eurobonds, and Eurocurrencies 28

World Stock Markets 29

Function of Financial Intermediaries 29

Transaction Costs 29

Following the Financial News Foreign Stock Market Indexes 30

Box 1 Global: The Importance of Financial Intermediaries to Securities

Markets: An International Comparison 31

Risk Sharing 31

Asymmetric Information: Adverse Selection and Moral Hazard 32

Financial Intermediaries 34

Depository Institutions 34

Contractual Savings Institutions 35

Investment Intermediaries 37

Regulation of the Financial System 37

Increasing Information Available to Investors 39

Ensuring the Soundness of Financial Intermediaries 39

Financial Regulation Abroad 40

Summary, Key Terms, Questions and Problems, and Web Exercises 41

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