Introduction to Finance

ethical behavior 
how an individual 
or organization treats others legally, 
fairly, and honestly

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1.4 Overview of the Financial System
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While the fi nancial press chooses to highlight examples of unethical behavior, most indi-
viduals exhibit sound ethical behavior in their personal and business dealings and practices. 
In fact, the sixth principle of fi nance depends on most individuals practicing high-quality eth-
ical behavior and believing that reputation matters. To be successful, an organization or busi-
ness must have the trust and confi dence of its various constituencies, including customers, 
employees, owners, and the community. High-quality ethical behavior involves treating others 
fairly and honestly, and goes beyond just meeting legal and regulatory requirements. High repu-
tation value refl ects high-quality ethical behavior, so employing high ethical standards is the 
right thing to do. Many organizations and businesses have developed and follow their own code 
of ethics. The importance of practicing sound ethical behavior is discussed throughout this text.
DISCUSSION QUESTION 2
Would you purchase an automobile from a manufacturer that may have been modifying 
the pollution control equipment on its vehicles in order to pass government regulations? 
1.4
Overview of the Financial System
The 
fi nancial system
is a complex mix of fi nancial intermediaries, markets, instruments, 
policy makers, and regulations that interact to expedite the fl ow of fi nancial capital from 
savings into investment. We present a brief overview of the fi nancial system in Chapter 1 and 
then follow with more-detailed coverage in the remaining chapters of Part 1.
Characteristics and Requirements 
Figure 1.2
provides a graphical review of the four major components of the U.S. fi nancial 
system. First, an eff ective fi nancial system must have several sets of policy makers who pass