[ISH1B3] Sistem Enterprise (SE)

BASICS FINANCIAL INFORMATION SYSTEM

Introduction
WEEK 2 : FINANCIAL SYSTEM
INFORMATION SYSTEM CLASS 2021
SCHOOL OF INDUSTRIAL AND SYSTEM ENGINEERING

1
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 What Will We Learn Today
.

Financial
Assets

Financial Financial
Instruments Intermediaries
Financial
System

Financial
Financial
Rates of
Markets
Returns

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 Financial System
.
A country’s financial system consists of entities that help facilitate the flow of funds from
those that have funds to invest to those who need funds to invest
In addition to the lenders and the borrowers, the
financial system has three components
In lending and investing situations,
Financial markets, where transactions there is not only the awkwardness
take place of dealing directly with the other
party or parties, but there is the
Financial intermediaries, who facilitate problem that one party has a
the transactions different information set than the
other. In other words, there is
Regulators of financial activities, who try information asymmetry.
to make sure that everyone is playing fair

The financial system is the collection of markets, institutions, laws,

regulations, and techniques through which bonds, stocks, and other
securities are traded, interest rates are determined, and financial services
are produced and delivered around the world.
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 Six Parts of the Financial System
.

Money Financial Instruments

To transfer resources from savers
To pay for purchases to investors and to transfer risk to
and store wealth those best equipped to bear it

01 02
Financial Market Financial Institutions
To buy and sell financial
instruments. 06 03 To provide access to financial
markets, collect information &
provide services.

05 04
Regulatory Agencies Central Banks
To provide oversight for financial To monitor financial Institutions
system and stabilize the economy

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 Five Core Principles of Financial System
.
Core Principles of Money and Banking

Risk requires
compensation
Markets
determine prices
Time has value
and allocation
resources
Information is the
basis for decisions
Stability improves
welfare.

A Rupiah today is worth more than a

rupiah a year from now…….why????

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 Financial Asset
.
An asset is any resource that we expect to provide future benefits and,
hence, has economic value

Intangible Assets

Tangible Assets
• An intangible asset represents a legal
claim to some future economic benefit
or benefits. Examples of intangible The value of a tangible asset depends
assets include patents, copyrights, and on its physical properties. Buildings,
trademarks. aircraft, land, and machinery are
• The value of an intangible asset bears no
examples of tangible assets, which we
relation to the form, physical or often refer to as fixed assets
otherwise, in which the claims are
recorded. Another term we use for a financial asset
is financial instrument.

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 Why Do We Need Financial Assets?
.
Financial assets serve two principal functions:

01 They allow the transference of funds from those entities that have surplus
funds to invest to those who need funds to invest in tangible assets
They permit the transference of funds in such a way as to redistribute
the unavoidable risk associated with the tangible assets’ cash flow
02 among those seeking and those providing the funds

03 The Role of the Financial Intermediary

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 The Role of Financial Intermediaries
.
Financial systems have found the need for a special type of financial entity, a financial intermediary,
when there are conditions that make it difficult for lenders or investors of funds to deal directly with
borrowers of funds in financial markets.

• The role of financial intermediaries is to create more favorable transaction terms than could be
realized by lenders/investors and borrowers dealing directly with each other in the financial
market. Financial intermediaries accomplish this in a two-step process:

Obtaining funds from lenders or investors..

Lending or investing the funds that they borrow to those who need
funds. .

Basically, this process allows a financial intermediary to transform financial assets

that are less desirable for a large part of the investing public into other financial assets
—their own liabilities—which are more widely preferred by the public

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 Financial Intermediaries Services
.
Facilitating the trading of
financial assets by using its
own capital to take the other Facilitating the trading
Facilitating the trading of position in a financial asset to of financial assets by
financial assets for the financial accommodate a customer’s using its own capital to
intermediary’s customers transaction. take the other position
through brokering in a financial asset to
arrangements accommodate a
customer’s transaction.

Providing investment
Assisting in the creation of advice and managing
financial assets for its the financial assets to
customers and then either customers. Providing a payment
distributing those financial mechanism.
assets to other market
participants

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 The Role of Financial Markets
.
Financial markets provide the following three major economic functions:

Price means that the interactions of buyers and sellers in a financial market determine
Discovery the price of the traded asset

Second, financial markets provide a forum for investors to sell a financial instrument
Liquidity and therefore offer investors liquidity. Liquidity is the presence of buyers and sellers
ready to trade

Reduce
Transaction The third economic function of a financial market is that it reduces the cost of
cost transacting when parties want to trade a financial instrument

Investors exchange financial instruments in a financial market. The more popular

term used for the exchanging of financial instruments is that they are “traded.”

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 Type of Financial Markets
.
From the perspective of a given country, we can break down a country’s financial market into an
internal market and an external market.

Internal External
Market Market

The internal market, which we also refer to as the national market, is made up of two parts:

1. Domestic Market 2. Foreign Market

Domestic market and the foreign market. The foreign market is where securities
The domestic market is where issuers of issuers not domiciled in the country
domiciled in the country issue securities are sold and traded. For example, the
and where investors then trade those securities issued by Toyota Motor
securities. For example, from the Corporation trade in the foreign
perspective of the Indonesia, securities market.
issued by Astra. corporation, trade in the
domestic market.

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 Type of Financial Markets
.
Internal External
Market Market

The External market, This is the market where securities with the following two distinguishing
features are trading:
At issuance the securities are offered simultaneously to investors in
a number of countries.

The securities are issued outside the jurisdiction of

any single country. We also refer to the external
market as the international market, the offshore
market, and the Euromarket (despite the fact that this
market is not limited to Europe)..

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 Capital Market
.

According to W.H. Husband and J.C. Dockerbay, “the capital market is used to
designate activities in long term credit, which is characterized mainly by securities of
investment type”.

Market for Long Term Fund

Capital market simply refers to a market for long term funds. It is a market for buying and selling of
equity, debt and other securities. Generally, it deals with long term securities that have a maturity period
of above one year.

• Capital market is the market for long term This market deals in the long term claims,
funds securities and stocks with a maturity period of
• A market for long term funds more than one year.
• Focus on financing of fixed investments

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 Money Market
.
• The money market is the sector of the financial market that
includes financial instruments with a maturity or
redemption date one year or less at the time of issuance.
• Typically, money market instruments are debt instruments
and include Treasury bills, commercial paper, negotiable
certificates of deposit, repurchase agreements, and bankers’
acceptances

Several Money Market Instrument

Treasury bills (popularly Commercial paper is a promissory Certificates of deposit (CDs) are
referred to as T-bills) are short- note—a written promise to pay— written promises by a bank to
term securities issued by a large, creditworthy pay a depositor. Investors can
issued by the government; they corporation or a municipality. This buy and sell negotiable
have original maturities of four financial instrument has an original certificates of deposit, which are
weeks, three months, or six maturity that typically ranges from CDs issued by large commercial
one day to 270 days banks.
months.

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 General Features Of a Money Market

It is market
purely for short-
It deals with only those
term funds or
assets which can be
financial assets
converted into cash
called near
readily without loss and Generally transactions take place through
money.
with minimum phone i.e., oral communication. Relevant
transaction cost documents and written communications can
be exchanged subsequently. There is no
formal place like stock exchange as in the
case of a capital market.

It deals with
financial
assets having
a maturity
period up to
The components of a money market are the
one year
Central Bank, Commercial Banks, Nonbanking
only.
Transactions have to be conducted financial companies, discount houses and
without the help of brokers.. acceptance house. Commercial banks generally
play a dominant in this market.

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 Functions Performed by the Global Financial
System and the Financial Markets
Savings function
The global system of financial markets and institutions provides a conduit for
the public’s savings.

Wealth function.
The financial instruments sold in the money and capital markets provide an
excellent way to store wealth.

Liquidity function
Finance Financial markets provide liquidity for savers who hold financial instruments
but are in need of money.

Credit function
Global financial markets furnish credit to finance consumption and
investment spending

Payment function
The global financial system provides a mechanism for making payments for
goods and services.

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 Domestic Non-Financial Sector

Pemerintah Badan Usaha Perusahaan Pemerintah

Pusat Milik Negara yang disponsori Daerah
Pemerintah

Condition in Indonesia

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 Non-Financial Business
• Nonfinancial businesses are enterprises formed by individuals and other
businesses to engage in activities for a profit, where these activities are not
primarily those of a financial intermediary, such as a commercial bank.
• These businesses issue debt and equity instruments, and they invest in
financial markets
• The financial subsidiaries, which we refer to as captive finance companies,
participate in the financial market by lending funds. Examples include Astra
Credit Company (a subsidiary of For Astra International)

5 state-owned companies in Indonesia with the highest assets in 2020

Total Asset : Total Asset : Total Asset : Total Asset : Total Asset :
1.379,07 T 1.296,9 T 1.202,25 T 918,26 T 808,57 T

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 Domestic Financial Sector
The financial sectors include enterprises that and regulators that provide the framework for
facilitating lending and borrowing.

Non depository Insurance is a means of Manage

Bank and Thrift protection from financial
financial institutions the funds of individuals,
loss. It is a form of risk
are intermediaries businesses, and state and
management, primarily
that do not accept used to hedge against the local governments, and
deposits, but lend risk of a contingent or are compensated for this
funds to consumers uncertain loss. service by fees that they
and businesses charge

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 Financial Rates of Return

Most households in India still prefer to invest on physical assets like land,
buildings, gold, silver etc.

Studies have shown that investment in financial assets like equities in capital market
fetches more return than investments on gold.

• It is imperative that one should have some basic knowledge about the rate of
return on financial assets also. The peculiar feature of the interest rate structure
is that the interest rates do not reflect the free market forces.

• It is imperative that one should have some basic knowledge about the rate of
return on financial assets also. The Government and the Bank Indonesia
determine the interest rates on Government securities.

• The return on Government securities and bonds are comparatively less than on
corporate securities due to lower risk involved therein.

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 Financial Instrument

• A document that has a monetary value or

represents a legally enforceable (binding)
agreement between two or more parties
regarding a right to payment of money
• Such as a check, draft, bond, share, bill of
exchange, futures or options contract

Type of Financial Instrument:

1. Capital Market Instrument
2. Money Market Instrument

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 Capital Market Instrument
Capital
Capital Market
Market Instrument
Instrument Equity shares were earlier known as ordinary shares
• Equity shareholders have to share reward and risk
• Shares (Equity and associated with ownership of company.
• Equity shareholders are the owners of the
Preferred Shares)
company who have control over working of the
• Debenture company
• Bond
Preference shares, more commonly referred to as
preferred stock, are shares of a company’s stock with
dividends that are paid out to shareholders before
common stock dividends are issue
• A debt instrument issued for a period of more
than one year with the purpose of raising
capital by borrowing.
• Generally, a bond is a promise to repay the A debenture is an instrument issued by a
principal along with interes (coupons) on a company under its common seal
specified date (maturity). Some bonds do not acknowledging a debt and setting forth the
pay interest, but all bonds require a terms under which they are issued and are
repayment of principal to be paid.

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 Money Market Instrument

• A banker’s acceptance (BA) is a

short-term credit investment created
Treasure
by a non-financial firm.
Bills • BA’s are guaranteed by a bank to
Banker’s make payment.
• Acceptances are traded at discounts
Acceptance
from face value in the secondary
Certificated market
of Deposit • BA acts as a negotiable time draft for
financing imports, exports or other
Repurchase transactions in goods.
Agreement
Commercial
Paper

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 Foreign Investor

The sector referred to as foreign investors includes individuals, nonfinancial

business, and financial entities that are not domiciled in the Indonesia, as well as
foreign central governments and supranational.

• A supranational institution is an
international entity that is created by A foreign central bank is a monetary authority of
two or more central governments the foreign country, such as the People’s Bank of
through international treaties. China (PBC), the European Central Bank, and the
• We can divide supranationals into two CIBC
categories: multilateral development
banks and others.
Foreign central banks participate in the U.S. financial
market for two reasons

The first reason is to stabilize their The second reason is to purchase a financial
currency relative to the U.S. dollar. instrument with excess funds because it is
perceived to be an attractive investment vehicle

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 Several Indonesia’s Financial Authorities

In ndonesia Financial Services Authority (Otoritas Jasa Indonesia Deposit Insurance Corporation
Keuangan) (Lembaga Penjamin Simpanan, LPS)
• OJK is the financial regulator established in January 2013 • All banks that operate in Indonesia are obliged to become
with authority to regulate, supervise, examine and a member of the deposit insurance system managed by
investigate the financial services sectorin Indonesia. LPS.
• OJK is an independent entity reporting to the parliament • Bank deposits are insured up to IDR2 billion
(People’s Representative Council).

Indonesian Stock Exchange (PT Bursa

Bank Indonesia Efek Indonesia, BEI/IDX)
• The Indonesian central bank is responsible for monetary • Is a private company that is self regulating and enacts its
policy, macro prudential regulation, the payment systems and own rules on listing and membership requirements.
foreign exchange. • It monitors trading, settlement, and listed companies’
• Its mandate is to achieve and maintain rupiah stability by compliance with its regulations.
maintaining monetary stability and financial stability for • It also receives corporate action notifications from
supporting sustainable economic development companies and announces them to the market

Ministry of Finance (Kementerian Keuangan) Indonesian Central Security Depository (PT

Kustodian Sentral Efek Indonesia, KSEI
• Besides setting and managing central government • KSEI is a private limited liability company that acts as the
budgets together with the National Development Planning only central depository for equity and corporate bonds in
Agency (BAPPENAS), the Ministry of Finance is the Indonesian market.
responsible for the formulation, stipulation, and
implementation of financial policies.

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 Key Elements of a Well-functioning Financial System

Sound public
A strong legal
finances and A central bank
and regulatory Stable money
public debt
environment
management

Sound banking Well-functioning

system Information system
securities market

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 Merci bien
ありがとう
Matur Nuwun
Hatur Nuhun
Obrigado
Dank
Thanks
Matur se Kelangkong

Syukron
Kheili Mamnun
ευχαριστίες
Danke
Grazias
谢谢
Terima Kasih

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