Financial Systems: Functional and Structural Perspectives
Chapter 2: Introduction to financial systems Aims
The aim of this chapter is to investigate financial systems from both a functional and a structural perspective. We set out a taxonomy of financial intermediaries, securities and financial markets, and give an overview of the peculiarities of national financial systems.
Learning outcomes
By the end of this chapter, and having completed the essential readings and activities, you will be able to:
• explain why financial systems exist (i.e. explain the functions of financial systems)
• outline the structure of financial systems (i.e. describe the three main entities that compose financial systems: financial intermediaries, securities and financial markets)
• describe which financial intermediaries operate in financial systems in the USA in particular and, more generally, around the world (e.g. depository institutions, contractual savings institutions and investment intermediaries) and explain their characteristics
• explain which financial securities are traded on financial markets
(bonds, notes, bills and stocks), and explain their nature
• discuss the various theories that attempt to explain the shape of the yield curve
• explain the structure of financial markets in the USA and around the world (primary versus secondary markets, money versus capital markets, organised versus over-the-counter markets, quote-driven dealer markets versus order-driven markets and brokered markets).
Essential reading
Allen, F. and D. Gale Comparing Financial Systems. (Cambridge, Mass.: MIT
Press, 2001) Chapter 3.
Mishkin, F. and S. Eakins Financial Markets and Institutions. (Boston, London:
Addison Wesley, 2009) Chapters 1, 2 and 10.
Further reading
Brealey, R.A., S.C. Myers and F. Allen Principles of Corporate Finance. (Boston,
London: McGraw-Hill/Irwin, 2010) Chapter 14.
Buckle, M. and J. Thompson The UK Financial System. (Manchester:
Manchester University Press, 2004) Chapter 1.
Freixas, X. and
The aim of this chapter is to investigate financial systems from both a functional and a structural perspective. We set out a taxonomy of financial intermediaries, securities and financial markets, and give an overview of the peculiarities of national financial systems.
Learning outcomes
By the end of this chapter, and having completed the essential readings and activities, you will be able to:
• explain why financial systems exist (i.e. explain the functions of financial systems)
• outline the structure of financial systems (i.e. describe the three main entities that compose financial systems: financial intermediaries, securities and financial markets)
• describe which financial intermediaries operate in financial systems in the USA in particular and, more generally, around the world (e.g. depository institutions, contractual savings institutions and investment intermediaries) and explain their characteristics
• explain which financial securities are traded on financial markets
(bonds, notes, bills and stocks), and explain their nature
• discuss the various theories that attempt to explain the shape of the yield curve
• explain the structure of financial markets in the USA and around the world (primary versus secondary markets, money versus capital markets, organised versus over-the-counter markets, quote-driven dealer markets versus order-driven markets and brokered markets).
Essential reading
Allen, F. and D. Gale Comparing Financial Systems. (Cambridge, Mass.: MIT
Press, 2001) Chapter 3.
Mishkin, F. and S. Eakins Financial Markets and Institutions. (Boston, London:
Addison Wesley, 2009) Chapters 1, 2 and 10.
Further reading
Brealey, R.A., S.C. Myers and F. Allen Principles of Corporate Finance. (Boston,
London: McGraw-Hill/Irwin, 2010) Chapter 14.
Buckle, M. and J. Thompson The UK Financial System. (Manchester:
Manchester University Press, 2004) Chapter 1.
Freixas, X. and