Subject 1: The financial market system (Chapter 1)

  * Development of financial markets has made the exchange of value for goods and services much easier.
  * Use of monetary value (money)
      * Money: any commodity that is widely accepted in a country as a medium of exchange.
      * Act as medium of exchange
        * Allows markets in goods and services to become much more efficient
      * Allows specialisation in production
        * Produce in surplus and sell to others
        * Solves the divisibility problem
            * Problem: need to establish the rate of exchange (the price) at which the trade will take place
            * Medium of exchange does not represent equal value for the parties to the transaction
      * Represents a store of wealth
      * Increases the speed and efficiency for transaction taking place
      * Facilitates saving (easier to save surplus funds)
        * Savings: deferring consumption into the future
        * Surplus unit: savers of funds available for lending
            * E.g. householders, companies, government, rest of the world
        * Deficit unit: borrowers of funds for capital investment and consumption
            * E.g. householders (Individuals), businesses and government, rest of the world
        * Funds saved by surplus units (savers with excess funds) can be put to use by borrowers or deficit units (those whose current demand for goods and services is greater than their current available funds)
  * Financial system
      * Exist because to ensure effective flow of funds between savers and borrowers.
      * Financial institutions and markets facilitate financial transactions between the providers of funds and the users of funds
        * Financial transaction takes place, it establishes a claim to future cash flows
        * Recorded by the creation of a financial asset on the balance sheet of the save
        * Financial asset: a financial...