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. (9 marks)

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

(~there is no additional information)