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Курсовик THE FINANCIAL SYSTEM AND CREDIT RELATIONS IN RUSSIA
Тип работы: Курсовик.
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Table of Contents
Chapter 1. Financial system: its structure and importance. 4
1.1. Components of the financial system and their functions. 4
1.2. The role of the financial system in the economy. 7
1.3. Typical risks and challenges. 9
Chapter 2. Peculiarities of Russian financial system. 10
2.1. Institutions and markets: funding and volumes. 10
2.2. Regulation and supervision 13
2.3. Impact of the recent financial crisis on the financial system and credit relations. 15
Chapter 3. Prospects of further development. 17
3.1. Entry to the WTO: advantages and disadvantages. 17
3.2. Important and necessary changes of economic policy. 18
In this paper I tried to systematize and summarize gathered information about financial system in a whole and the state of the financial sector in Russia.
The first chapter is dedicated to the structure of a financial system: its components and functions. The link between the development of financial system and economic standing is also considered in this chapter.
In the second chapter, only Russian financial system is examined. First of all, financial institutions and markets are described and analyzed; then follows the regulatory system. At the end of this chapter you are provided with brief information about the results of the recent financial crisis.
The third, last, part provides you with forecasts and suggestions about Russian financial system further development. Two points are taken into consideration here: entry to the WTO and changes of economic policy.
The main idea of this paper is to obtain a clear idea about modern Russian financial sector, its strengths and weaknesses, in order to conclude whether government undertakes all necessary steps for its enhancement, whether it has future. At the end of this work I want to proof that the changes in economic development, such as entry to the WTO and financial reforms, planned for the nearest future may have very ambiguous impact on the Russian financial system.
Chapter 1. Financial system: its structure and importance.
1.1. Components of the financial system and their functions.
The financial system has six parts, each of which plays a fundamental role in the economy. Those parts are:
· Financial instruments,
· Financial markets,
· Financial institutions,
· Government regulatory agencies, and
· Central banks.
In our every-day life the first part of the system, money, is used to pay for the purchases and to store the wealth. Financial instruments are used to transfer resources from savers to investors and to transfer risk to those who are best equipped to bear it. Stocks, mortgages, and insurance policies are examples of financial instruments. The third part of a financial system, financial markets, allows to buy and sell financial instruments quickly and cheaply. The New York Stock Exchange is an example of a financial market. Financial institutions, the fourth part of the financial system, provide a million of services, including access to the financial markets and collection of information about prospective borrowers to ensure their creditworthiness. Banks, securities firms, and insurance companies are examples of financial institutions. Government regulatory agencies form the fifth part of the financial system. They are responsible for making sure that the elements of the financial system-including its instruments, markets, and institutions-operate in a safe and reliable manner. Finally, Central Banks, the sixth part of the system, monitor and stabilize the economy.
While the essential functions that define these six categories endure, their form is constantly developing. Money once consisted of gold and silver coins, which were eventually replaced by paper currency, which today is being eclipsed by electronic funds transfers. Methods of accessing means of payment have changed dramatically as well. Today, to pay their bills, people once wrote checks and put them in the mail, then waited for their monthly bank statements to make sure the transactions had been processed correctly. Today, payments can be made automatically, and account holders can check the transactions at any time on their bank’s Web site.
Financial instruments have evolved just as much as currency. In the last few centuries, investors could buy individual stocks through stockbrokers, but the transactions were costly. Furthermore, putting together a portfolio of even a small number of stocks and bonds was extremely time consuming; just collecting the information necessary to evaluate a potential investment was a daunting task. Today, financial institutions offer people with as little as $1,000 to invest the ability to purchase shares in mutual funds, which pool the savings of a large number of investors. Because of their size, mutual funds can construct portfolios of hundreds or even thousands of different stocks and bonds.
The markets where stocks and bonds are sold have undergone a similar transformation. Originally, financial markets were located in coffeehouses and taverns where individuals met to exchange financial instruments. The next step was to create organized markets, like the New York Stock Exchange-trading places specifically dedicated to the buying and selling of stocks and bonds. Today, electronic networks handle much of the activity that once occurred at these big-city financial exchanges. Because electronic networks have reduced the cost of processing financial transactions, even small investors can afford to participate in them. Just as important, today’s financial markets offer a much broader array of financial instruments than those available even 50 years ago.
Financial institutions have changed, as well. Banks began as vaults where people could store their assets. Gradually, they developed into institutions that accepted deposits and made loans. For hundreds of years, in fact, that was what bankers did. Today, a bank is more like a financial supermarket. A huge assortment of financial products and services for sale are presented there, from access to the financial markets to insurance policies, mortgages, consumer credit, and even investment advice.
The activities of government regulatory agencies and the design of regulation have been evolving and have entered a period of more rapid change, too. In the aftermath of the financial crisis of 1929-1933, when the failure of thousands of banks led to the Great Depression, the U.S. government introduced regulatory agencies to provide wide-ranging financial regulation-rules for the operation of financial institutions and markets-and supervision-oversight through examination and enforcement. This experience was accepted and supported by the most of countries all around the world. Yet, the evolution of financial instruments, institutions, and markets has led to many changes in the ways that regulatory agencies work. Today, banks are engaged in millions of transactions, many of which are far more complex and difficult to understand than a loan or a mortgage. So, a government examiner also looks at the systems that a bank uses to manage its various risks. In doing so, regulators try to encourage best practices throughout the financial industry. However, the failure of regulators in the United States and elsewhere around the world to anticipate or prevent the financial crisis of 2007-2009 has led many governments to consider more far-reaching changes to financial regulation and the regulatory agencies.
Finally, central banks have changed a great deal. They began as large private banks founded by monarchs to finance wars. Eventually, these government treasuries grew into the modern central banks we know today. Central banks control the availability of money and credit to ensure low inflation, high growth, and the stability of the financial system. Today’s policymakers strive for transparency in CBs’ operations. Officials at the European Central Bank and the U.S. Federal Reserve-two of the most important central banks in the world-go out of their way to explain the rationale for their decisions.
1.2. The role of the financial system in the economy.
Again, in general, the role of the financial system is to intermediate between lenders and borrowers, providing a menu of saving vehicles with differing risk and return characteristics, and helping investors find the financing they need, taking into account the returns and risks on the projects they wish to undertake. In carrying out their functions, financial intermediaries reduce transactions costs for savers and investors and help reduce problems of irrelevant information that are inherent in the relationships between investors and entrepreneurs. And to an important extent, the development of sophisticated derivative instruments has helped to improve the allocation of risk in the economy, and increase the efficiency of the saving- investment process.
In practice, there exist two main theoretical approaches to defining the importance of financial system in economic development. Easy to guess, that they are negative and positive ones. The first view is that the financial sector does not matter very much, and that any correlation between financial development and growth is a result of growth leading development. This theory is supported by some economists, Robert Lucas, American economist and Nobel Prize winner, is among them. The second view is that an efficient financial system is key to development. The most important and thorough early contribution on financial development and economic development came ........
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