TOC
1. The Evolution of Financial System
barter economy ⇒ monetary economy ⇒ financial economy (with a financial system)
Barter economy
- the simplest form of the economy, people exchange their products directly
- build on the “Double coincidence of wants”
Monetary economy
- the common medium of exchange merge from the barter economy: money
- money: valuable, relatively scarce, homogeneous, divisible, easy to carry
- Problems: no financial systems, people can only buy what they can affrod.
Financial economy
2. Roles of Financial systems
A financial system is the collection of financial markets and financial intermediaries that facilitate the issuance and transaction of the financial claims.
Two main roles of the financial system:
Firstly, financial system is an intermediary between those economic agents in surplus and those agents in deficit. A well functioning financial system channels funds efficiently to the agents of the highest productivity.
Secondly, financial system is a payment machanism. Payment methods inlcude cheques, debt cards, credit cards, Online payment platforms, the letter of credit, BACS (Bankers’ Automated Clearing Services), CHAPS (Clearing House Automated Payments System)
3. Participants of financial system:
Participants of financial system inlucde:
- The ultimate lenders and ulitmate borrowers
- Individuals and organizations who need certain financial services (insurance, tax service, investment, mortgage)
- Financial intermediaries (VC firms, pension funds, banks)
- Financial market organizers (the LSE)
- Regulators (the FCA, PRA, BoE)
Attributes of a financial center:
- People: availability of skilled people, business education, active labor market
- Infrastructure: IT support, office spaces, transportation
- Business environment
- the most important factor
- include law, regulation, tax, economic freedom, government support, the ease of doing business.
- Transparency
- Fair and just business environment
- Market access: access to national and international financial markets；clustering of financial-service firms.
- General competitiveness: a good place to live, education, health care, safety, air quality, etc.
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