...Financial Market and Institutions Christopher Little FIN/370 June 23, 2016 Steve Garrett Financial Market and Institutions Report What comes to mind when you hear financial institutions? For most people, it is going to be a bank which is the most common type of financial institution. What about financial markets? A financial market is where buyers and sellers trade. An example of a well-known financial market is the New York Stock Exchange. This establishment trades trillions of dollars on a daily basis. Both financial markets and financial institution play a vital role within any economy. There are also primary and secondary markets as well as money markets and capital markets. We will take a look at the differences and what role they play in the economy. Let’s start with financial institutions and the example I gave earlier was a bank. A bank is the most common financial institution and is pretty straight forward. You give the bank money and they hold it for you. Then, you ask, how does a bank make money? A bank also lends out money to individuals that are looking to make a large purchase, such as a house. The bank uses the money people deposit to loan out to others and interest is paid on the loan. A bank allows consumers to take out loans for purchases, then with a set time frame, pay back the money loaned with interest. That is one reason the recession of 2008 hit so hard. The bank loaned many people money but then many of those people were...
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...Financial Markets and Institutions. Money Markets vs. Capital Markets The money markets lend or borrow funds for a shorter time period, one year or less period. The main characteristics of money market are deposits, loans, acceptances and bills of exchange. There are number types of institutions that are operated in money markets, such as, central banks and commercial banks. Money markets are largely unregulated and informal because most of the payments are done by phone, fax and online. Money markets provide individual business or government companies. Cash is the main purpose for opening money markets. The money market is important for ensuring companies and governments maintain the steady level of cash flow. Investors use the money markets to invest funds because money markets are safe and the amount of risk is small. The reliability of short time period gives little time for a nonpayment to happen that is why, the risk is decreased. The capital markets lend or borrow the funds for long-term period, i.e. for more than one year. The main instruments that are used in the capital market are stocks, shares, bonds, and securities of the government. Some important institutions of the capital market are stock exchanges, commercial banks and nonbank institutions, such as insurance companies, loan banks, and construction groups. In capital markets, the institutions not largely regulated. Capital markets provide fixed cash for their institutions to buy land, estate and machinery...
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...LaToya Tucker Finance 350 Assignment 1 Professor Togbenou December 17, 2012 1. Explore one (1) financial market and the types of transactions supported by it in the U.S. and global economies. Determine how valuable these transactions are to the overall U.S. and the global economies. In finance a bond is a debt security issued by corporations and government agencies to assist in their daily operations and functions. When the corporation or agency issues a bond to the bond holder, they are actually issuing a debt and promise to repay the original bond price plus interest in most cases. The interest paid on this debt is considered the coupon payment and is usually paid semi-annually or annually. Depending on the type of bond, the coupon payment can be a fixed rate or it can change over the course of maturity. Bonds have maturities that range from one year to over fifty years. A bondholder might not want to hold the bond until the agreed upon date so they sell the bond in a secondary market in order to have access to their money again. A bond can be a municipal, a treasury, a junk, a corporate or an I-bond. There are also bonds considered convertible bonds that can be transferred into stock by the bondholder. “Bonds are an important part of the economy and contribute to two-thirds of the average daily trade in U.S. market (Chakrvarty)”. Bonds are considered valuable because they are a means to wealth from an investor’s standpoint and they make business operations more...
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...Non Bank Financial Intermediaries INTRODUCTION • NBFCs are privately owned, decentralized and relatively small-sized financial intermediaries. • Some are primarily engaged in fund-based activities and others provide financial services of diverse kinds. • The former are know as Non Banking Financial Companies (NBFCs) and the latter are known as Non Banking Financial Services Companies (NBFSCs). OVERVIEW • Two parts 1. 1995-96 2. 2002-03 • During 1995-96, NBFCs had undergone radical transformation. • The post 1995 overview is depicted with whatever information is available. NATURE • There are thousands of NBFCs and only a small proportion of them report to the RBI. • The RBI (Amendment) Act, 1997 defines NBFC as an “institution or company whose principal business is to accept deposits under any scheme or arrangement or in any other manner, and to lend in any manner.” • As a result, a number of loan and investment companies registered under the Companies act by business houses for the purpose of investment in group companies are now included as NBFCs. CATEGORIES 1. 2. 3. 4. 5. 6. 7. 8. Equipment Leasing Company (ELC) Hire-Purchase Finance Company (HPFC) Housing Finance Company (HFC) Investment Company (IC) Loan Company (LC) Mutual Benefit Financial Company (MBFC) Miscellaneous Non-Banking Company (MNBC) Residuary Non-Banking Company (RNBC) IMPORTANCE • NBFCs perform a diverse range of functions and helps bridge the credit gaps. • They have served the households, farm,...
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...Financial Institutions and Financial Markets FIN/370 Financial Institutions and Financial Markets The state of the economy in the United States is very crucial to businesses and society. The success of the economy is reliant on financial institutions and financial markets. “The market for the creation and exchange of financial assets such as money, stocks, and bonds, plays a central role in organizing and coordinating our economy” (Colander, 2013, p. 643). Financial institutions are essential in providing funding for activities that take place within the financial markets. This paper will describe the roles of financial institutions and financial markets in our economy, as well as compare and discuss the differentiations between markets. The Roles of Financial Institutions Financial institutions play a vital role in the success of our economy and financial markets. They are responsible for financial transactions such as deposits, investments, and loans. Examples of financial institutions are commercial banks, investment banks, credit unions, insurance companies, mutual funds, and brokerages. A few of the well-known U.S. financial institutions are Bank of America, JP Morgan Chase Bank, Wachovia Bank, and Wells Fargo Bank. Financial institutions provide a means of savings for society and businesses. Saving money incurs interest, which allows people and businesses to save additional funds. Financial institutions provide loans so businesses can grow...
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...------------------------------------------------- FINANCIAL MARKETS AND INSTITUTIONS 1. You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction? a. This is an example of a direct transfer of capital. b. This is an example of a primary market transaction. c. This is an example of an exchange of physical assets. d. This is an example of a money market transaction. e. This is an example of a derivative market transaction. Answer: a 2. Which of the following statements is CORRECT? a. The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically. b. An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift. c. Capital market instruments include both long-term debt and common stocks. d. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction. e. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors. Answer: c 3. Which of the following is a primary market transaction? a. You sell...
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...Financial Institutions in the Stock Markets Running Head: Financial Institutions in the Stock Markets Financial Institutions in the Stock Markets: Market Capitalization, EPS Growth, and Investor Expectations Influence on Stock Prices Introduction Wild gyrations, extreme peaks and valleys, and fear and mania; this has been the epitome of the stock markets not just historically but over the last decade. Ten years ago, the NASDAQ was at an all time high exceeding 5,000 in March of 2000, the DOW was exceeding 11,000 and the general state of the economy was very favorable. Internet companies were being spawned by the hundreds and many of them turned once struggling entrepreneurs into instant millionaires. Internet IPO’s were the hottest thing since sliced bread and many thought there was no end to the rise of the new technology companies. Alas, right after the NASDAQ peaked in March 2000, a precipitous drop occurred and the markets plummeted. Just a year prior, the NASDAAQ returned nearly 90%, but one year later it plummeted 40% and continued dropping. The bear market of 2000-2002 erased all gains of the NASDAQ that to this day hasn’t even recovered half of its gains. The mood of investors and the American public quickly went from great to grim. The American and even global economy is strongly tied to the performance of our public companies. These public companies make up trillions of dollars in annual revenue. In fact, in the total market cap in 2008 of all...
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...The Role of Financial Institutions in Financial Markets Paper In the contemporary business environment, there is cut-throat competition between companies for achieving excellence and long-term profitability. Most of these companies are dependent on various financial institutions for fund management. The given paper is a descriptive analysis of the role of financial institutions in financial markets. In addition to this, the paper also talks about how these institutions interact with each other. Financial market is a system that provides a common platform to people for the purpose of buying and selling financial securities, commodities, and other fungible items. In addition to that, the financial market also helps in risk mitigation and international trade. An efficient financial market facilitates these transactions at low cost and effective hypothesis (Amadeo, 2010). Financial markets can be grouped as: * Capital market, Stock and Bond markets. * Commodity markets. * Money markets, for short and long term financing. * Derivative markets, provides tool for managing financial risks. * Insurance markets; and * Foreign exchange markets. On the other side of things, financial institutions in simple words can be defined as an institution that provides various financial services to its customers. These institutions act as financial intermediaries between individual customers, organizations, and government (InvestorWords.com, 2010). Financial intuitions can...
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...Foundations of Financial Markets and Institutions, 4e (Fabozzi/Modigliani/Jones) Chapter 9 Properties and Pricing of Financial Assets Multiple Choice Questions 1 Properties of Financial Assets 1) Which of the below is NOT one of the eleven properties of financial assets? A) moneyness B) multiplicity and denomination C) reversibility D) cash flow Answer: B Comment: The eleven properties of financial assets are (1) moneyness, (2) divisibility and denomination, (3) reversibility, (4) cash flow, (5) term to maturity, (6) convertibility, (7) currency, (8) liquidity, (9) return predictability, (10) complexity, and (11) tax status. Diff: 2 Topic: 9.1 Properties of Financial Assets Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination; reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk; complexity; and tax status 2) Which of the below is NOT one of the eleven properties of financial assets? A) convertibility B) currency C) liquidity predictability D) tax status Answer: C Comment: The eleven properties of financial assets are (1) moneyness, (2) divisibility and denomination, (3) reversibility, (4) cash flow, (5) term to maturity, (6) convertibility, (7) currency, (8) liquidity, (9) return predictability, (10) complexity, and (11) tax status. Diff: 2 Topic: 9.1 Properties of Financial Assets Objective: 9.1 the many key properties of financial assets: moneyness; divisibility...
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...Foundations of Financial Markets and Institutions, 4e (Fabozzi/Modigliani/Jones) Chapter 2 Financial Institutions, Financial Intermediaries, and Asset Management Firms Multiple Choice Questions 1 Financial Institutions 1) Financial enterprises, more popularly referred to as financial institutions, provide a variety of services. Which of the below is NOT one of these? A) Transform financial assets acquired through the market and constituting them into a different, and more widely preferable, type of asset–which becomes their liability. B) Exchange financial assets on behalf of customers but not for their own accounts. C) Manage the portfolios of other market participants. D) Assist in the creation of financial assets for their customers, and then sell those financial assets to other market participants. Answer: B Comment: Financial enterprises exchange financial assets both on behalf of customers and for their own accounts. Diff: 2 Topic: 2.1 Financial Institutions Objective: 2.1 the business of financial institutions 2) Financial intermediaries include ________ that acquire the bulk of their funds by offering their liabilities to the public mostly in the form of deposits; insurance companies, pension funds, and finance companies. A) depository institutions B) utilities C) initial public offerings D) preferred equity instrument. Answer: A Diff: 1 Topic: 2.1 Financial Institutions Objective: 2.1 the business of financial institutions 3) Some...
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...Questions 1. Primary markets are markets where users of funds raise cash by selling securities to funds' suppliers. True False 2. Secondary markets are markets used by corporations to raise cash by issuing securities for a short time period. True False 3. In a private placement, the issuer typically sells the entire issue to one, or only a few, institutional buyers. True False 4. The NYSE is an example of a secondary market. True False 5. Privately placed securities are usually sold to one or more investment bankers and then resold to the general public. True False 6. Money markets are the markets for securities with an original maturity of 1 year or less. True False 7. Financial intermediaries such as banks typically have assets that are riskier than their liabilities. True False 8. There are three types of major financial markets today: primary, secondary, and derivatives markets. The NYSE and NASDAQ are both examples of derivatives markets. True False Multiple Choice Questions 9. What factors are encouraging financial institutions to offer overlapping financial services such as banking, investment banking, brokerage, etc.? I. Regulatory changes allowing institutions to offer more services II. Technological improvements reducing the cost of providing financial services III. Increasing competition from full service global financial institutions IV. Reduction in...
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...ASSIGNMENT#1 Submitted By: Saadia 1. Accounting and Auditing Organization for Islamic financial institution (AAOIFI) The AAOIFI is a non-profit organization that focuses mainly on the area of accounting and auditing for Islamic financial institutions. While recognizing the need for standards, AAOIFI was established on February 1990 in Algeria and was registered on March 1991 in the kingdom of Bahrain. The organization is supported by 200 institution members from 45 countries across the global. The AAOIFI is one of prominent Islamic agency that attempts to install accounting and auditing standard for Islamic financial industry. The main object is to develop and disseminate accounting and auditing thought relevant to Islamic financial institutions and their applications. Its tasks include holding seminars, publishing periodicals, newsletters, commissioning research and prepare, promulgate, interpret and review, the accounting and auditing standards for Islamic financial institutions. Its notable efforts are to inform and encourage banking supervisors around the world to adopt its standard as the benchmark for Islamic financial institutions in their countries. These attempts to improve the transparency and comparability of the financial reporting of Islamic financial institutions are bearing fruit. The AAOIFI’s standard has been applied in various countries such as Bahrain and Sudan which require Islamic Banks in their countries to follow AAOIFI’s standards. In Qatar and Saudi...
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...Definition of financial system A financial system can be defined at the global, regional or firm specific level. The firm's financial system is the set of implemented procedures that track the financial activities of the company. On a regional scale, the financial system is the system that enables lenders and borrowers to exchange funds. The global financial system is basically a broader regional system that encompasses all financial institutions, borrowers and lenders within the global economy. The financial system in Sri Lanka comprises the major financial institutions, namely the Central Bank of Sri Lanka, Licensed Commercial Banks (LCBs), Licensed Specialized Banks (LSBs), Licensed Finance Companies (LFCs), Specialized Leasing Companies (SLCs), Primary Dealers (PDs), Pension and Provident Funds, Insurance Companies, Rural Banks, Stock Brokers, Securities Market Intermediaries, Unit Trusts and Thrift and Credit Co-operative Societies; the major financial markets, such as the Foreign Exchange Market, Money Market, Capital Market and the informal financial market; and the financial infrastructure which is the legal framework related to the financial system and the payment and settlement. The nature of the financial institutions The banking sector in Sri Lanka, which comprises LCBs and LSBs, dominates the financial system and accounted for 58 per cent of the total assets of the financial system as at end December 2013. Banks play a central role within the financial system, as...
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...CHAPTER 3: The Role of Financial Intermediaries and Financial Markets FOCUS OF THE CHAPTER This chapter provides an analysis of the roles and importance of financial institutions and financial markets, two important parts of the financial system. A broad classification of Canadian financial institutions is presented with an historical overview. Some basic classifications of financial markets are described. The chapter ends with an evaluation of the importance of the financial system to the Canadian economy, and of the future of banks, given recent developments in the financial system. Learning Objectives: □ Explain what financial intermediaries do □ Explain a classification of the financial system by type of institution □ Name the original four pillars of the financial system □ Provide a classification of the financial system by type of market □ Describe the financial system in Canada □ Discuss the effects of technology and deregulation on banks, and whether banks as we know them will survive SECTION SUMMARIES Intermediation A financial intermediary (such as a bank) simultaneously interacts with savers (or lenders) and borrowers and produces a set of services which facilitate the transformation of its liabilities (such as deposits) into assets (such as loans). The function of facilitating liabilities (or assets) into assets (or liabilities) is called intermediation. Through intermediation financial intermediaries allow indirect lending (and borrowing)...
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...1-1 A Modern Financial System—An Overview 1-2 Learning Objectives • Explain the functions of a financial system • The main types of financial institutions • Describe the main classes of financial instruments issued in a financial system • The flow of funds between savers / borrowers • Distinguish between various types of financial markets according to function • Appreciate the importance of globalisation • Understand the effects and consequences of a financial crisis on a financial system and economy 1-3 1 Functions of a Financial System • Money – Acts as medium of exchange – Solves the divisibility problem, i.e. where medium of exchange does not represent equal value for the p q parties to the transaction – Facilitates saving – Represents a store of wealth 1-4 Functions of a Financial System (cont.) • Role of markets – Facilitate exchange of goods and services by bringing opposite parties together establishing rates of exchange, i.e. prices • Financial Markets consist of: • Surplus units – Savers of funds available for lending • Deficit units – Borrowers of funds for capital investment and consumption 1-5 1.1 Functions of a Financial System (cont.) 1-6 2 Functions of a Financial System (cont.) • Financial instrument – Issued by a party raising funds, acknowledging a financial commitment and entitling the holder to specified future cash flows • Double coincidence of wants satisfied – A transaction between two parties that meets their...
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