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Sem 5 Prep
← Money & BankingHow a financial system is put together

Formulas for this chapter

Financial deepening ratio

Deepening = Credit to the private sector / GDP x 100

When the question asks how deep or developed a system is. It is a stock over a flow, so only comparisons mean anything: this year against last, or one country against another.

Credit
Outstanding credit to the commercial or private sector
GDP
One year's output, at current prices

Market-based share of external financing

Market share = (Bonds + Equity raised) / (Bank credit + Bonds + Equity) x 100 Bank share = Bank credit / total x 100

When asked whether a system is market-based or bank-based. Bonds count on the market side, which is where most marks are dropped.

Bonds
Funds raised through debt securities in the market
Equity raised
Fresh equity raised in the primary market
Bank credit
Loans and advances from banks
Step 2 of 27
The real wordsTheory

The four subsystems

The slide's own sentence, and it is the frame for everything below.

Financial systemA set of sub systems of financial institutions, markets, instruments and services. It intermediates with the flow of funds between savers and borrowers, and facilitates the transfer and allocation of scarce resources efficiently and effectively.

Four subsystems. The professor's own deck widens the list to six: institutions, markets, services, instruments, practices and transactions. Give four if asked for the subsystems, and mention the extra two as the fuller version.

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