Draw two boxes and label with names of learners A and B. Below [A], write Saver,and below

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Question:

Draw two boxes and label with names of learners A and B. Below [A], write "Saver",and below [B], write "users of funds"

If A knows that B is in need of funds, or if B knows that A is willing to invest funds, A and B may agree to make a Private Placement.

*Private Placements - the sale of a new security directly to an investor or group of investors.

However, if these facts are unknown to them, A and B can go to a Financial Market which is an organized forum that lets A, along with other suppliers of funds, and B, along with other users of funds, meet and make transactions. Once A and B have met in the Financial Market, they can now agree to make a private placement.

If A and B do not want to make an effort to find a counterpart in the Financial Markets, A and B may go to a Financial Institution. A Financial Institution will receive A's supply of funds and match it with B's demand of funds. Unlike the Financial Markets were A and B knows to whom the fund went and from whom the funds came, Financial Institutions serve as an intermediary to the suppliers and users of funds.

Moreover, Financial institutions actively participate in the financial markets as both suppliers and users of funds.

Financial System:

Figure 1: The Financial System

*Note that on the diagram presented, the solid lines represent the flow of cash/funds, while the colored lines represent the flow of financial instruments which represent obligations to transfer cash or other assets in the future.

Enrichment Activity: Read and answer the following questions. Use separate sheet of paper for your answers.

1. How transactions between suppliers and users of funds take place. How would you prove that there was a transaction so that the demander will be able to repay the supplier on time and at the right amount?

2. Due to the increased need for security for the performance of obligations arising from these transactions and due to the growing size of the financial system, where does the transfers of funds from one party to another are made?