Question

22. Victoria Credit Bank (VCB) issues bonds to households who are not depositors in that bank. VCB makes a loan to a commercial company, Rio Tinto, which is a depositor in that bank. Rio Tinto is funding the forage of a new mine. The households fund their investment with accumulated past savings and hold their bank deposits in Northern Territory Credit Bank (NTCB).

a) Using a flow-of-funds diagram incorporating the surplus spending units, deficit spending units, financial intermediary, financial markets and payment system illustrate how the funds and the financial instruments circulate in the financial system. In your diagram make a clear distinction between bank deposits and ESF, and indicate money and instrument creation/destruction where relevant.

b) Explain whether there is channelling of funds and transit of funds. (1 mark)

(~there is no additional information)

Answer 1

a)FLOW OF FUND DIAGRAM

Explained

Flow-of-funds diagram incorporating the surplus spending units, deficit spending units, financial intermediary,

In the snapshot below

Financial instrument shown as assets and liability

Financial System Explained through Diagram

Instrument creation has been shown

.

in case 3rd snapshot is not visible kindly comment & let me know ir is on the financial market diagram

B) YES there is channelling of funds as funds are transfe

rred from SSU to DSU through a financial intermediary and 2 financial instruments have been issued (loans, Bonds)

The above uploaded 3 pdf snapshots  are of converted document file in which i have solved the answer To part A elaborated.

Kindly go through iT and for any queries please ask i will explain.Kindly upvote that matters for me and anything not clear i can explain