Complexities of the U.S. Financial System

In: Business and Management

Submitted By samccleskey
Words 810
Pages 4
Assignment1:
Complexities of the U.S. Financial System

Synthia Reed
FIN 100
Professor Lester Reid
Strayer University

May 5, 2013

Complexities of the U.S. Financial System
The U.S. financial markets play a big role in the economy. If no one is investing in businesses, they cannot start up, or grow larger to meet the needs of the country or nation. The economy is directly impacted by the amount of stocks bought and sold each day. Before the U.S. stock market crashed in 1929, it was booming. Americans had invested so much money in France that when their economy rose, so did the U.S. It collapsed because Americans pulled their money out of France and put it in U.S. stocks. If everyone pulled their investments today, the same thing would happen. Businesses would fail, and the U.S. would go into more debt.
The central bank of the United States is the Federal Reserve System controls the financial system, and is the most powerful single actor in the U.S. economy. The head of the central banking system of the U.S. is called the Chairman of the Federal Reserve. The chairman is appointed by the president of the United States and serves a four-year term with confirmation from the Senate, currently serving is Ben Bernanke. The Federal Reserve System has a total of seven board members including the Chairman. With the exception of the Chairman members serve a staggered fourteen-year term. The Federal Reserve Board of Governors is responsible for the monetary policy and serves as a dependent political structure. Although it is a dependent political structure and operates on its own, disagreements between the administration and board are very common. Pressure from Congress and/or the President can and have influenced the decision of the board but its semi-independence prevails, generally. The Federal Reserve Board of Governors “operates through the Federal Open…...

Similar Documents

Islamic Financial System

...Introduction Recent global financial crisis has highlighted the problems in the current financial system. Some of the analysts have even termed it as the downfall of the capitalism and interest based economy driven by ‘greed’ and has acknowledged the need of a new financial system. One interesting development in this whole scenario was the relative stability of Islamic Financial Institutions (IFIs). In the last decade, IFIs have witnessed an impressive growth and have begun to make an impact on the current financial setup. This paper aims to highlight the basic foundation of Islamic financial system and the development of different markets and institutions. It will then point out certain issues and challenges facing the Islamic Financial Institutions. HISTORY Early History: The history of Islamic Financial system goes back to 1,000 – 1,500 AD, during which the Middle Eastern tradesmen would engage in transactions based on Shariah. During that time, the Ottoman Empire Arabs had good trade relationships with the Spanish, and they established their financial systems without interest, based on profit and loss sharing basis. As time went by, Middle Eastern and Asian regions became important trading partners for European companies such as the Dutch East India Company, as a result of which European banks started to spread their branches in these countries, which typically were interest-based. Thus the conventional financial institutions became more dominant as Western countries...

Words: 6394 - Pages: 26

Banking and Financial System

...Banking and Financial Systems SOUTH AFRICA [pic] | | Summary Introduction page 3 I) Executive Summary. page 4 II) The Financial System: page 4 A) The Banking System page 5 B) The Financial Market page 7 III) The Legal Side: page 7 A) Legal Framework page 7 B) Regulatory Oversight page 8 IV) Depository-Taking Institutions. page 9 V) Banking Issues and Challenges Prospect. page 10 Conclusion page 12 Sources page 12 Annexes page 13 Introduction For years ago, South Africa has been facing a lot of racial, political and demographic problems. On the first hand, this country must face these elements and on the other hand it must still working to become a powerful economic country in the world. With this report we are going to develop the Financial System of South Africa which is a key sector in the country. The South Africa Gross Domestic Product is worth 277 billion dollars or 0.45% of the world economy, according to the World Bank. While it contracted 2.80% over the last 4 quarters, the economy was expected to move back into growth in the last quarter of the year and GDP growth of 1.5% is forecast for 2010, rising to 3.2% by 2012. South Africa has a two-tiered economy; one rivaling other developed countries and the other one with only the most basic...

Words: 3359 - Pages: 14

Us Financial System

...The purpose of this paper is to discuss the U.S. financial markets, the role of investment banker and other sources of capital that is available to corporations. The paper will also discuss how a corporation raises short term and long term capital through this the U.S. financial system. When considering finance, it is understood that it can be used in a number of ways, whether it is used by individuals for personal finance, by the government in terms of public finance or for business in regards to corporate financing. The role of the U.S. financial system plays an important part in corporations raising capital in that the financial system provides several avenues for a firm to gather both short term and long term capital. Monetary institutions have a distinct purpose in the U.S. economy because they provide the resource for corporations to access financial support to raise capital for investment prospects. There are different varieties of financial institutions that supply financial assistance in the United States which range from banks that lend money commercially to companies that are responsible for securities, and then there are the companies that are involved in finance. Such institutions support certain markets and fortify the economic health of the U.S. by transitioning funds among providers of capital and those in need of said capital. A corporation can choose to be private or public, private corporations are generally owned by the CEO meaning the CEO owns 100% of...

Words: 1046 - Pages: 5

Financial Statement Insurance System

...Financial Statement Insurance System For years, investors in Chinese companies have used the reputations of outside auditors, institutional investors, and global investment banks as a proxy for reliable financial reporting. In fact, the Securities and Exchange Commission led to increasing battles with Deloitte Touche Tohmatsu, which discovered the bookkeeping fraud at Longtop Financial Technologies of China. Deloutte audited the company’s book and stated that Longtop sill recorded $332 million off-balance sheet (S.E.C. clashes with deloitte in China over fraud, 2011). However, this has become worse. Since March, Chinese Government announced that more than two dozen companies said they will resign their auditors because of some accounting problems, according to the U.S. Securities and Exchange Commission. As a result, the SEC charged the overseas companies listed in the United States according to these scandals (Jubak, 2011). Since the financial statements were not disclosed transparently and accurately, even misstated, the independence of auditors in Deloitte Touche Tohmatsu obviously was lost. Nowadays, since the independence of the auditor is lacking, the fraudulent cases, such as financial misstatement, have occurred frequently in China. One major cause is that an inherent conflict of interest is created between the management of clients and the auditor. The auditors are paid by the client companies; they thus depend on CEOs and CFOs, who effectively...

Words: 904 - Pages: 4

Financial System

...3. Classification of Financial Instruments lassification of financial instruments and identification of their nature is one of the most important phases for compilation and presentation of monetary statistics. Like other classifications used in monetary statistics, it is also advisable here to follow international standards that would help to make statistics comparable across countries’ and ensure its unity. In carrying out classification, there will be a need to consider features of a country’s banking and financial system paying a due regard to their development prospects. C Financial instruments are financial contracts of different nature made between institutional units. These comprise the full range of financial claims and liabilities between institutional units, including contingent liabilities like guarantees, commitments, etc. Financial asset is defined as any contract from which a financial claim may derive for one party and a financial liability or participation in equity for another. Financial instrument can exist only between two institutional units. Where financial instruments are compounded, i.e. represent a set of several instruments, for compilation of statistics there will be a need to distinguish them into separate instruments so that each of them includes only a single pair of institutional units. Financial assets are contracts that do not contain contingency, i.e., irrespective of any conditions, generate financial claims having demonstrable...

Words: 5536 - Pages: 23

Financial System

...Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College irelandp@bc.edu http://www2.bc.edu/~irelandp/ec261.html Chapter 2: An Overview of the Financial System 1. Function of Financial Markets and Financial Intermediaries 2. Structure of Financial Markets Debt and Equity Markets Primary and Secondary Markets Exchanges and Over-the-Counter Markets Money and Capital Markets 3. Financial Instruments Money Market Instruments Capital Market Instruments 4. Role of Financial Intermediaries Transaction Costs and Economies of Scale Risk Sharing and Diversification Adverse Selection and Moral Hazard 5. Types of Financial Intermediaries Depository Institutions (Banks) Contractual Savings Institutions Investment Intermediaries This chapter provides an overview of the financial system in the US economy by describing the various types of financial markets, financial instruments, and financial institutions or intermediaries that exist. 1 The chapter begins with a general statement that clarifies what function financial markets and financial intermediaries have in the economy as a whole. It then deals more specifically with: The structure of financial markets and the ways in which different types of financial markets can be distinguished. Here, it discusses debt versus equity markets, primary versus secondary markets, exchanges versus over-the-counter markets, and money versus capital markets. The various types of financial instruments...

Words: 2854 - Pages: 12

U.S. Financial System

...Complexities of the U.S. Financial System Jami Christian Professor Umair Warsi Finance 100 May 4, 2013 The financial markets help to efficiently direct the flow of savings and investment in the economy in ways that facilitate the accumulation of capital and the production of goods and services. The combination of well developed financial markets and institutions, as well as a diverse array of financial products and instruments, suits the needs of borrowers and lenders and therefore the overall economy (Econ, 2005). The stock market is an economic indicator of how well the U.S. economy is doing. If investors are confident in the economy, they will buy stocks. Stocks are how companies get funded to grow larger. Usually, when someone wants to start a business, they pay for it with loans or even their own credit cards. Once they grow the company enough, they can get bank loans, or even float their own bonds to individual investors. Since the U.S. stock market is so sophisticated, it is easier in this country than in many others to take a company public. This helps the economy grow, since it provides a boost up to companies wishing to grow very large. The Federal Reserve is the nation’s central bank that works to keep the banking, financial, and payments system safe, sound and stable. It also provides financial services to the government and public. Finally, and very importantly, the Federal Reserve’s conduct of monetary policy contributes to the long run health of...

Words: 822 - Pages: 4

Complexity

...Complexities of the US Financial System The U.S. financial markets impact the economy, businesses, and individuals in a multitude of ways. Businesses are impacted by the U.S. Financial markets through investing. For instance, if the number of investors lowers dramatically businesses will have a hard time finding funds to grow their business or even start it up at all. Individuals who invest or trade are both positively and negatively impacted. According to Kimberly Amandeo, " The investors profit when the companies increase their earnings, which keeps the U.S. economy growing. Its easy to buy stocks, but takes alot of knowledge to buy stocks in the right company". If not done properly or funds are not pulled before a business fails, the individual- who may have their livelyhood riding on this- could lose everything. The investor is needed in order to keep businesses going. If individuals just decided to stop investing businesses would fail and the U.S. would fall into even more debt. The U.S. Financial market acts as a chain that connects the economy, businesses, and individual together and shows us just how well the economy is doing. If one is effected, both negatively or positively, so are the other two. The US Financial System is not limited to the financial and stock market. A Financial System is a composition of multiple financial institutions, markets, regulatory bodies, and depositors. A Money Market is where low-risk, highly liquid, short-term instruments are...

Words: 705 - Pages: 3

Swedish Financial System

...Swedish Financial System A country’s financial system is an intermediary that channels savings efficiently to fulfill the broader investments and consumption needs of society at large. Swedish financial industry made up a total of 4% of the GDP of the country in the year 2011. It employs around two percent of the total workforce of the country. The following table shows the groups of companies in the Swedish financial market, measured in total assets. Banks clearly grab the largest chunk, amounting to 40% of the total assets of financial market in 2011. Players in the financial market | Percentage share | Banks | 40% | Mortgage credit institutions | 16% | Insurance companies | 20% | Mutual fund companies | 11% | AP Funds | 7% | Other credit market companies | 6% | Swedish Banking System Sweden had a total of 117 banks at the end of 2012. There are four main categories of banks in the Swedish market : * Swedish commercial banks * Foreign banks * Savings banks * Foreign banks Savings banks Co-operative banks Commercial banks Co-operative banks Subsidiaries The four big banks Branches Savings banks converted to joint stock cos. Diverse business focus and ownership structure Swedish commercial banks There are three categories of commercial banks in Sweden . The first category comprises of the largest four bank, namely, Swedbank, Handelsbanken, Nordea and SEB. They are an important and active part on most segments of...

Words: 1614 - Pages: 7

Financial System of Bangladesh

...1. Financial System of Bangladesh: Financial system is a Set of institutional arrangement through which financial surpluses will be mobilized from the surplus units and will be transferred to the deficit units. It is a framework for describing set of markets, organisations, and individuals that engage in the transaction of financial instruments (securities), as well as regulatory institutions. The basic role of Financial System is essentially channelling of funds within the different units of the economy – from surplus units to deficit units for productive purposes. 1.1 COMPONENTS OF FINANCIAL SYSTEM: There are mainly three components of financial system. These are: I. Financial Market II. Financial Intermediaries III. Financial Instrument I. FINANCIAL MARKET Financial markets are a mechanism enabling participants to deal in financial claims. The markets also provide a facility in which their demands and requirements interact to set a price for such claims. Financial markets perform the essential function of channeling funds from economic players that have saved surplus funds to those that have a shortage of funds. At any point in time in an economy, there are individuals or organizations with excess amounts of funds, and others with a lack of funds they need for example to consume or to invest. Exchange between these two groups of agents is settled in financial markets. The first group is commonly referred to as...

Words: 4873 - Pages: 20

Financial System

...------------------------------------------------- Financial System of Bangladesh The Financial System is a set of institutional arrangement through which surplus units transfer their fund to deficit units. At present the financial system in Bangladesh is mainly composed of two types of institutions like banks and non-bank financial institution (NBFIs). The formal financial sector in Bangladesh includes: (a) Bangladesh Bank as the central bank, (b) 48 commercial banks, including 4 Government owned commercial banks, 30 domestic private banks (PCBs) (of which 6 banks are operating under Islamic Shariah), 9 foreign banks (FCBs) (of which 1 bank is operating as Islamic bank); and 5 government-owned specialized banks (DFIs); (c) 28 non-bank financial institutions (NBFIs) – licensed by the Bangladesh Bank); (d) 2 large government- owned insurance companies (life and general) and 60 private owned (17 life and 43 general) insurance companies; (e) 2 stock exchanges and, (f) some co-operative banks. Besides, a good number of semi-formal micro finance institutions (MFIs) also are operating in Bangladesh. Structure of Financial System: The main constituents of financial system are : i) Financial Institutions ii) Financial Instruments, and iii) Financial Markets. Financial Institutions The modern name of Financial Institution is Financial Intermediary (FI), because it mediates or stand between ultimate borrowers and ultimate lenders and helps transfer funds from one to...

Words: 6352 - Pages: 26

The Mauritian Financial System

... reserves in debt instruments widely thought of as "safe," (including U.S. government bonds), a sudden market decline in those securities could force banks to raise capital or pare back on lending, to say nothing of the loss in shareholder equity from the investment losses. Operating Risk Banks are also vulnerable to the same sort of operating risk as any competitive enterprise. Management may make mistakes regarding acquisitions, expansion, marketing or other policies, and lose ground to rivals. In the case of banking, operating risk can have a longer tail than in other industries. Banks may be tempted to underprice loans to garner market share, but underpriced mortgage loans can hurt a bank for many years, and over-aggressive lending (lending to poor credit risks) can threaten the survival of the bank itself. Interest Rate Risk As so much of a bank's profitability is determined by the interest rates they charge and pay out, banks are highly exposed to changes in interest rates. Banks must always be making predictions and estimates of future interest rate movements and positioning their balance sheet, accordingly. Unexpected rate changes can significantly impair profitability, as the bank repositions its balance sheet. Legal Risk The bank industry also faces certain legal risks that are not very common outside of the financial services industries. In addition to the aforementioned laws concerning fair and honest lending, banks are also compelled to play a role in......

Words: 6505 - Pages: 27

Financial System

...1. Question 1: “The role of the financial system in a market economy is to effectively and efficiently move funds from surplus budget units to deficit budget units.” However, in the absence of well-functioning financial intermediaries this transfer of funds may be severely retarded.” Discuss. Within a financial system, surplus and deficit units trade, which facilitates the movement of funds from deficit units to have access to those with the budgeted units. Hence, there is always the incentive to trade. The role of the financial system is also to allow the deferral of expenditure. The question is often asked, how can this exchange of funds take place, one may think of it as a do it yourself project, like selling your house, without a real estate agent, an individual can simply make a profit and cash in on funds without having to pay the middle man. Persons are often of the belief direct financing may be easier than the use of an intermediary, this occurs where ultimate users and ultimate providers of the funds exchange claims directly with each other without the use of the bank, however, it is not as simple as it seems. Many issues may arise that is why there is the need for well-functioning financial intermediaries. Also known as indirect financing this is where institutions pool savings together and investments of those with surplus budgeted units and lend them to persons within deficit units in order to receive a return. Financial intermediaries transform financial...

Words: 1276 - Pages: 6

Financial System

...A financial system is a system that to channels funds from lenders to borrowers, to create liquidity and money, to provide payments mechanism, to provide financial services. The present structure of the financial system in Bangladesh comprises of various types of banks, insurance companies, non-bank financial institutions and share market. Money market Bank NBFI Share market Insurance Bank: Bangladesh Bank is at the top of the banking system and is accountable for assuring prudential administration and central banking activities for all types of banks operating within the banking industry. Bangladesh Bank monitor, control the overall banking system. Banks in Bangladesh are two types: a) Scheduled Banks, b) Non Schedule bank. a) Schedule Bank: Basically Schedule bank is two type: i) State owned commercial bank. i.e. Sonali bank. ii) Private commercial bank. i.e. Prime bank, Islami bank NBFI: Non-banking financial institutions, which are not, banks. These institutions cannot perform all functions of banks. NBFI cannot issue check, not allowed to take all type of deposits except fixed deposit. It provides long term loan. Not regulated all the time by Bangladesh bank. For example: IDLC Share market: Bangladesh Securities and Exchange Commission (BSES) is the regulator of Share market...

Words: 356 - Pages: 2

Indian Financial System

...INDIAN FINANCIAL SYSTEM The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and household sector. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the deficit. It is a composition of various institutions, markets, regulations and laws, practices, money manager analyst, transactions and claims and liabilities. function of the financial system is the mobilisation of savings, their distribution for industrial investment and stimulating capital formation to accelerate the process of economic growth The features of a financial system are as follows 1. Financial system provides an ideal linkage between depositors and investors, thus encouraging both savings and investments. 2. Financial system facilitates expansion of financial markets over space and time. 3. Financial system promotes efficient allocation of financial resources for socially desirable and economically productive purposes. 4. Financial system influences both the quality and the pace of economic development. The Indian Financial system (financial markets) is broadly divided under two heads: (i) Indian Money Market (ii) Indian Capital Market The Indian money market is the market in which short-term funds are borrowed and lent. The money market does not deal in cash, or money but in bills of exchange, grade bills and...

Words: 1577 - Pages: 7