The Financial Sector

Prepared and Presented by Miss S. Brown

 The complex mix or network of markets,
The Financial households, businesses, governments, laws
Sector and institutions interacting with one
another.
Role of the Financial Sector

The financial sector plays an important role in the functioning of the

economy through intermediation. Simply put, the financial
sector sits between savers and borrowers: it takes funds from savers
(for example, through deposits) and lends them to those who wish
to borrow, be they households, businesses or governments.
Functions of the Financial Sector

• It attracts funds from businesses and private individuals

• It affords these businesses and private individuals and opportunity to earn
interest on their idle money balances
• It provides the government with a source of funds for investment
• Provides the private sector with a source of funds for investment
• It provides private individuals with a source of funds for investment or spending

• It allows the private sector and private individuals the opportunity for part
ownership in companies
• Provides compensation when mishaps occur, thus, reducing risk of the economy
 Economic activities that are not
Informal officially regulated and which take
Sector place outside the formal norms of
business transactions.
 Concept of
Money
Money as any item
considered acceptable to
be used as payment for
goods and services.
Development of Money

• Money, in and of itself, has no actual value; its value is

symbolic because it conveys the importance that people
place on it.
• Money allows people to trade goods and services indirectly,
communicate the price of goods, and it provides individuals
with a way to store their wealth over the long-term.
• Before money, people acquired and exchanged goods
through a system of bartering, which involves the direct
trade of goods and services.
Development of Money

• The first region of the world to use an industrial

facility to manufacture coins that could be used as
currency was in Europe, in the region called Lydia
(modern-day Western Turkey), in approximately
600 B.C.
• The Chinese were the first to devise a system of
paper money, in approximately 770 B.C.
 Medium of Exchange

Store of value
Functions of
Money A unit of account

A standard of
deferred payment
 It must be homogeneous

It must be divisible

It must be portable
Features of It must be legal tender
Money
It mist be acceptable

It must be durable

It must be relatively scare

Money Supply

The total stock of money in the economy at any moment. It include:

M1 – Narrow money – notes, coins, cheque deposits,

travelers cheques

M2 – Board money – savings deposits, money market accounts

Role of the Central Bank

• Commercial Bank
• Stock Exchange
• Share Market
• Credit Union
• Development Bank
• Insurance Company
• Mutual Fund
• Building Society
• Investment Trust Company
• Informal credit institutions (Sou Sou, Box, Partner, Sindicatos, Meeting Turns).
 Treasury notes and bonds

Types of Corporate bonds

financial
instruments Municipal bonds

Equity securities.
Treasury notes and bonds

These are debts securities issued by the government hence the

name treasury.
Corporate bonds

These are long-term debt security issued by companies or

corporation.
Municipal Bonds

These represent the debt of municipality or other governmental unit

other than central government.
Equity securities

These are certificate of stocks that represent ownership in the

company