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Financial assets are claims to immediate or future cash payments (bank deposits, bonds,
shares of stocks)
Assets are what individuals, firms, and other participants in the economy own.
People hold their wealth in various assets depending on the needs and rewards (rates of return)
Savers
Financial
Borrowers
Institutions
Households
Banks
Households
Firms
Stockbrokers
Firms
Government
Mutual Fund
Cos.
Government
Trust Cos.
Risk Sharing
Hold several assets/Create a Portfolio
Diversification
Liquidity
A particular asset can be exchanged for other assets or for goods and services
Information
Gathering of information
Communication of information
Financial Intermediation
Funding
Treasury
Interest Rates:
Reserve Requirement:
Lending
a bank regulation that sets the minimum reserves each bank must hold to customer
deposits.
designed to satisfy withdrawal demands of clients.
normally in the form of currency stored/deposited with a central bank and/or
investments in government securities
Basic Formula:
Nominal Rate
--------------------------------(1-Reserve Requirement)
Statutory/Legal Reserves
Liquidity Reserves
:
:
8.00%
11.00%
---------19.00%
:
:
5.00%
19.00%
5.00%
-------------(1 19 .00%)
6.17283951% or 6.17%
Transfer Pool Funds
Price attached to the reservoir/pool of excess funds from any surplus units of the Bank
Surplus Units earn interest at TPR as if it were another asset/outlet
Deficient Units borrow from the pool at TPR
Transfer Pricing: