FİNANSAL PİYASALAR VE KURUMLAR - Deneme Sınavı - 11

Financial system is an open system in an economy, which enables the main actors of the economy, namely households, firms, and the government to have acceptable returns for their savings, and at the same time to borrow funds at an acceptable cost when needed.

The input of the financial system is the inclusion of excess funds to the process of matching the quantity, maturity, and cost/return of borrowings/savings. The output of a financial system is the realization of transfer of funds from those who have excess funds to those who have shortage of funds.

The fourth component of the financial system is financial intermediaries. Financial intermediaries are organizations that enable lenders and borrowers to find and trust each other in the financial system. Financial intermediaries are organizations that collect the savings and funnel them to parties in need.

There are five key components of a financial system: ultimate lenders, ultimate borrowers, financial instruments, financial intermediaries, and legal- administrative regulations.

The most common financial instruments of capital markets are long-term bonds (issued by government or firms) and stocks.

Risk refers in general to the magnitude and likelihood of unanticipated changes that have an impact on a firm’s cash flows, value or profitability.

Interest is a cost item in the form of interest expense for the borrower, whereas it is a return item in the form of interest earnings for the lender.

Calculating future value is called “compounding”. Using interest rate, we can find the value of money at any particular past or future date in time. The future worth of a particular quantity of money received today is called “future value of money”. The present worth of a particular quantity of money which will be received at a future date is called “present value of money”. If the interest rate is positive, the future value of a certain amount of money will be higher than its present value. Conversely, if the interest rate is negative, the future value of a certain amount of money will be lower than its present value.

Splitability is a term describing how much minimum amount of money is needed in order to buy a security.

Insurance companies are businesses that provide coverage, in the form of compensation resulting from loss, damages, injury, treatment or hardship in exchange for premium payments. The company calculates the risk of occurrence, then determines the cost to replace (pay for) the loss to define the premium amount.

The fourth component of the financial
system is financial intermediaries. Financial
intermediaries are organizations that enable lenders
and borrowers to find and trust each other in the
financial system.