Who is lender and borrower

Rather, they invest in these ultimate financial instruments via the investment vehicles, by buying their PIs. The same non-financial economic sectors appear on the other side of the Define the financial system. Describe the elements that make up the financial system. Financial System Non-financial lenders and borrowers It is highly improbable that the savings of non-financial economic units will be matched by desired investment. Some economic units will find that their savings out of income will exceed their planned investment, while others will find themselves in a situation where their savings are insufficient Financial System Element 2: financial intermediaries Financial intermediaries exist because there is a conflict between lenders and borrowers in terms of their financial requirements term, risk, volume, etc.

For example, members of the household sector as lenders generally have a need for current account deposits i. Investments: An Introduction The instruments of the financial intermediaries As we have seen, there are three groups of financial intermediaries: - Banks.

The deposit financial intermediaries central and private sector banks issue deposit securities: - Deposit securities: - Central bank: - Non-negotiable Explain the concepts of direct and indirect financing. Distinguish between primary and indirect securities. Examine the concept of financial intermediation. Offer an opinion on why financial intermediaries Financial System Element 3: financial instruments As a result of the process of financial intermediation, and in order to satisfy the investment requirements of the ultimate lenders and the financial intermediaries in their capacity as borrowers and lenders , a wide array of financial instruments exist.

The instruments are either non-marketable Financial System Financial instrument types As an introduction, it may be useful to be reminded of the financial system: see Figure 1. Lenders lend and borrowers borrow.

Financial intermediaries borrow and lend. The author of this research finds that the intensity, or length, of the borrower-lender relationship has diminished from what it once was.

In fact, they find that it is no longer a factor in the determination of credit availability. For businesses seeking credit, this implies that they need to be cognizant of their own metrics that the lenders are looking at and know how their business practices are impacting these numbers.

On the other side of the issue, the author finds that the borrower-lender relationship has increased its influence for determining the terms of the credit offered. It was found that the longer the lending relationship and the more intense the relationship e. Having spoken with lenders who have indicated an increase in competition amongst peer lending institutions, this is an outcome of the online loan applications.

Since it is now easy for a borrower who is seeking credit to fill out an online loan application, it has increased the competition amongst lenders. It is easier now than ever for a borrower to obtain credit from a lender they have never met and is quite possibly not located in the vicinity of the borrower. This means that the lender is offering a loyalty discount to those borrowers who have utilized their services in the past and are doing the majority of their business with that respective lending institution.

Borrowers will benefit from consolidating their banking activities in the form of more favorable credit terms. Business landscapes are changing at a pace never seen before. A bank may bundle the cash flows from a pool of assets and offer these ABS bonds to investors. The Securities and Exchange Commission notes that municipal bonds typically fall under two categories:.

These bonds require voting approval before issuance. Different types of bonds have different maturity dates, which are the dates on which the bond issuer repays its investors their full principal amount. Bonds may be term bonds or serial bonds, depending on how their maturities are structured. Term bonds represent bonds from the same issue that have the same maturity dates. Term bonds stretch further into the future than most serial bonds, typically from 20 to 30 years. Serial bonds are groups of bonds that are bound together with different bonds maturing at different times during the series.

The series typically spans anywhere from a year to 20 years. Bonds carry certain risks, as all investments do, but they also have certain rewards that include:.

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