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Assets and liabilities / \
• Any piece of property,	\ • A debt owned to
the ownership	someone else.
provides a flow of
benefits over time

What benefits do the users of system receive

•    Creating larger assets and liabilities

•    Easier lending and borrowing

-    Iowertransaction costs,

-    Iower search cost for borrowers

-    Iower interest rates

-    Iower risks

The equilibrium level of lending and borrowing will be greater in presence of intermediaries

Types of risk

Default risk	Capital	Income	Reinvestment
	risk	risk	risk
failing to pay	different value	different income	different ratę of
interest or omit	of assets than	from an asset	return from a
the datę	expected	than expected	maturing asset than expected

Maturity transformation

The conversion of funds lent for a short period into loans of longer duration

Financial markets		The key features of financial markets
•    Currency market •    Money market •    Securities market •    Credit market •    Derivatives market		•An organisational framework within which financial instruments can be bought and sold •Interact over a widely dispersed geographical area •Stock exchanges, offices, interbank relations •Technological changes link them