The Financial Sector

Money

Barter is the exchange of goods and services for other goods and services without the physical use of money.


Advantages of Barter:

  • No money is needed

  • It is useful in situations where money is scare

  • Reduces the need for fincancial institutions

  • Helps to use surplus goods


Disadvantages of Barter:

  • Difficult to determine value

  • Requires a double coincidence of want

  • Some goods can not be easily divided

  • Some goods are difficult to store


Money is anything that can be accepted as a means of exchange.


The Qualities/Characteristics of Money

  • Durable

  • Acceptable

  • Divisible

  • Portable

  • Scarcity

  • Homogenity


Functions of Money:

  • Medium of exchange

  • Store of value

  • Measure of value

  • Standard of differed payment


Different Financial Institutions:

  • Commercial Banks

  • Stock exchange

  • credit union

  • development bank

  • insurance fund

  • mutual fund

  • building societies

  • investment trust company

  • informal credit institutions (sou-sou, box, partner)


The Complex Nature of the Financial Sector

The financial sector is the complex network of markets, households, businesses, government, laws, regulation and financial institutions that interact with one another to facilitate:

  • Saving

  • Borriwng

  • Investing

  • The movement of money into an economy


Main components of the Financial Sector:

  • Financial Market: Systems where financial assets such as stocks, bonds, and foreign currencies are bought and sold.

Examples:

  • Money market

  • Capital market

  • Foreign exchange market

  • Stock market


  • Household: households participate in the financial sector by saving and borrowing omney, paying loan and interest, investing in bonds and sales, and purchasing insurance.

  • Businesses & Firms:

1) Obtaining loans

2) Raising capital

3) Make investment

5)Pay employees & suppliers

5) Purchase insurance


  • Governent: an important participant in the financial sector:

1) collect taxes

2) borrow money

3) bond (issue government security)

4) regulate financial institutions

5) manages public finances


  • Financial Institutions: the financial institutions provide financial services to":

1) Households

2) Businesses
3) Governments


  • Types of Financial Institutions:

  • Commercial Bank

  • Credit Union

  • Building Societies

  • isnurance companies

  • investment companies


The financial sector operated within a framework of laws and regulations.

  • JDIC

  • BOJ

  • FSC


  • Protect depositors and investors

  • regulate financial institutions

  • prevent financial fraud

  • promote financial stability

  • ensure that financial institutions operate responsibly


The role of the Central Bank

A central bank is the main financial institutino in a country responsible for managing a countries money supplied, credit conditions, and monetary systems. The central bank does not operate cimmercial banks. Instead, it works to promote monetary and financial stability and influences the availability and cost of money and credit in the economy.


  • Monetary policy is a set of actions taken by a country’s central bank to manage the overall money supply, control borrowing costs, and achiee economic stability.

  • Contractionary monetary policy is a central bank action that raises interest rates and reduces the money supply to slow down an overheated economy and fight high inflation

  • Expansionary monetary policy is a central bank strategy that increases the money supply and lowers borrowing costs to ostimulate economic activity suring a slowdown or recession.