Premium Essay

The Role of Financial Institutions in Financial Markets Paper

In: Business and Management

Submitted By lrr300
Words 930
Pages 4
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 be grouped under three heads, namely: 1. Depositories, these institutions accepts, store, and manage deposits and loans. Example, banks, credit unions, companies giving mortgage loans, and credit trusts and unions. 2. Insurance and pension funds providers, these companies provides numerous insurance schemes and fund management programs. 3. Individuals like brokers, underwriters,…...

Similar Documents

Free Essay

Term Paper of Financial Market

... “FINANCIAL MARKET” IN PARTIAL FULFILLMENT OF THE REQUIREMENTS IN ECON. 101(ECONOMIC W/ TAXATION & LANDREFORM) SUBMITTED TO: MR. ANDASIL J. ABUBAKAR, M (PHIL) “Instructor” SUBMITTED BY: GROUP 1 STUDENTS 1st semester/ A.Y 2012-2013 PART 1- FINANCIAL MARKET INTRODUCTION Throughout his text, Mishkin stresses that the evolution of financial markets, both in the U.S. and throughout the world, has resulted from an intricate interplay of three factors: chance, necessity, and design. In short, history matters, and it matters a lot. In addition, throughout his text Mishkin consistently stresses the importance of information. He argues that it is impossible to understand the special nature of financial markets relative to markets for real goods and services unless one understands the peculiar types of "asymmetric information problems" intrinsically associated with financial assets. He argues that these asymmetric information problems have largely shaped the structure of financial markets in the past, and that the recent surge of innovations in information technology (IT) -- in particular, Internet-related IT -- is leading to a dramatic restucturing of financial markets today. The notes, below, provide basic background information on financial markets as covered in Mishkin in Chapters 2......

Words: 1588 - Pages: 7

Premium Essay

Financial Markets and Institutions

... 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......

Words: 2121 - Pages: 9

Premium Essay

Bloomberg Financial Markets Paper

...Bloomberg Assignment Financial Markets and Institutions Friday, August 10th, 2012 Introduction As a basis for considering sound investment decisions we will be investigating the government bond market.  We will be focusing specifically on Canadian federal government bonds, and conducting our analysis on the exploration of 3 month, 5 year, and 10 year bond statistics.  The decision to explore the Canadian federal government bond market is motivated by a keen interest towards the impact that the global financial crisis has had on government bonds that are typically seen as low-risk, safe investments due to their implicit high-liquidity and low default rate. Through our investigation, analysis, and comparison of these bonds, we will arrive at a conclusion that will allow us to see not only the trends that have been prevalent over the past several years, but enable us to make an informed recommendation as to whether or not this market is a sound one to invest in based on our interpretation of trends and future projections. Qualitative Analysis The federal bond market has four key economic factors: interest rates, inflation rates, GDP per capita, and unemployment rates. Interest rates and inflation rates affect the yield-to-maturity of a bond as well as the bond price. GDP per capita and unemployment rates are factors that influence the demand for federal government bonds. Interest Rates The Bank of Canada Overnight Interest Rate affects the rate at which money......

Words: 1847 - Pages: 8

Premium Essay

Role of Financial Institution

...Competitive advantage, differentiation advantage, Competitors INTRODUCTION Today, most organizations in all sectors of industry, commerce and government are fundamentally dependent on their technologies. In the words of Rockart (1979) Technology (IT) has become inextricably intertwined with businesses. In some industries such as telecommunications, media, entertainment and financial services, where the product is already or is being increasingly digitized, the existence of an organization critically depends on the effective application of Latest technologies. The information revolution is sweeping through our economy. No company can escape its effects. Dramatic reduction in the cost of achieving, processing, and transmitting information is changing the mode by which we do business. Technological advances in the past few decades have greatly increased the competitive nature of the economic business world. Companies have used software, computers and the Internet to transform their businesses from local places of business to national and global market competitors. Many companies have responded to these changes by automating their business processes and capturing industry-related information and using it to their advantage. Technology has also forced businesses to remain flexible, adapting their operations to newer and better technological advances. The profitability potential of any firm depends on its ability to employ its sources of competitive......

Words: 2829 - Pages: 12

Premium Essay

Financial Institution

...Q1 Describe the role of Financial Institutions. What are the various types of Financial Institutions active in the Indian Financial system ? ANS: Financial sector plays an indispensable role in the overall development of a country. The most important constituent of this sector is the financial institutions, which act as a conduit for the transfer of resources from net savers to net borrowers, that is, from those who spend less than their earnings to those who spend more than their earnings. Financial Institution is not a new concept in financial history. The evolution of financial institutions must be differentiated from economic history and history of money. In Europe, it may have started with the first commodity exchange, the Bruges Bourse in 1309 and the first financiers and banks in the 1400-1600s in central and Western Europe. The first global financiers the Fuggers (1487) in Germany; the first stock company in England (Russia Company 1553); the first foreign exchange market; the first stock exchange. In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are highly regulated by government bodies. Broadly speaking, there are three major types of financial institution. 1. Deposit-taking institutions that accept and manage deposits and make......

Words: 2488 - Pages: 10

Free Essay

Financial Markets and Institutions

...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,...

Words: 1054 - Pages: 5

Premium Essay

Role of Financial Institutions in the Financial Development and Economic Development

...Role of Financial Institutions in the financial development and economic development Financial intermediaries perform an important role in the development process, particularly through their role in allocating resources to their most productive uses. More efficient financial markets help economic agents hedge, trade, pool risk, raising investment and economic growth. Financial institutions provide consumers and commercial clients with a wide range of services and different types of banking products. The importance of financial institutions to the wider economy is apparent during market booms and recessions. During economic upturns, financial institutions provide the financing that drives economic growth, and during recessions, banks curtail lending. This can exacerbate a country's financial problems and draw attention to the fact that economies are heavily reliant upon the financial sector. The importance of financial institutions and passed legislation made it easier for more people to obtain products and services from these entities. In many countries, banks are encouraged or even compelled to lend money to home buyers and small businesses. Readily available loans encourage consumer spending, and this spending leads to economic growth. There is now a clear realization that sustainable development will not and cannot be achieved by governments acting alone. In this context, the expertise of the private sector plays an important role. Role of Financial Institutions in......

Words: 2760 - Pages: 12

Premium Essay

Financial Institutions in the Stock Markets

...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......

Words: 2689 - Pages: 11

Premium Essay

Financial Market and Institution

...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......

Words: 1069 - Pages: 5

Premium Essay

Financial Terms and Roles Paper

...Financial Terms and Roles University of Phoenix June 6, 2013 FIN/370 – Finance for Business Resource: Financial Management Create a list of definitions for the following terms and identify their roles in finance. See instructor policy for detailed directions. • Finance Finance is the study of how people and businesses manage and invest their money. The study of finance is the management and interpretation of information during the management of money. The study of finance helps firms address three basic questions regarding investments and cash flow. These are the following: 1.) what long-term investments the firm undertakes? 2.) How should the firm raise money to fund these investments? 3.) How can the firm best manage its cash flows as they arise in its day-to-day operations? (Titman, Keown, & Martin, Chapter 1,  2012). • Efficient market Efficient market is a market whose prices quickly respond to the announcement of new information (Titman, Keown, & Martin, Chapter 1, 2012). The stock market is an example of an efficient market. • Primary market Primary market is a part of the financial market where new security issues are initially bought and sold. In this market, firms receive money raised in the selling of their securities. They issue new securities to raise money that they can then use to help finance their businesses (Titman, Keown, & Martin, Chapter 2, 2012). * Secondary market Secondary market is the financial......

Words: 1050 - Pages: 5

Premium Essay

Roles of International Financial Institutions

...Roles of International Financial Institutions Marcus Jenkins MGT448 January 10, 2011 Paul Bogert Introduction When listening to the latest television report concerning global business news or world economics, names of financial institutions such as World Bank, International Monetary Funds, and Asian Development Bank may be the center of some discussion. A major player on the global forefront, international financial institutions function much differently from local neighborhood banks. In this paper the author will define the roles of international financial institutions and explain the role international financial institutions play in global financing operations. Also the author describes how international financial institutions can help in managing risks. Defining International Financial Institutions “The international financial institutions (IFIs) are global institutions established to promote economic development and trade” (Arvanitakis, 2001). Governed by international law, these financial institutions are generally established by more than one country. Funded by taxpayers these institutions are also very influential. Each year these institutions lend billions of dollars to help fund economic development and projects in some of the poorer nations in the world. The most prominent example of international financial institutions is the World Bank and the International Monetary Fund (IMF). The World Bank and the International Monetary Fund were the......

Words: 1184 - Pages: 5

Premium Essay

Financial Markets and Institutions

...Steps for Writing a Term Paper LIBRARY GUIDE A TERM PAPER is a concisely written, documented paper of reasonable length in which a student identifies, analyzes, interprets, and draws conclusions from the facts and opinions of other people. A term paper requires a student to obtain information from a variety of sources (i.e., special subject indexes, encyclopedias and dictionaries, reference books, scholarly journals, books, and newspapers) and then place it in logically developed ideas. There are nine steps in writing a term paper, which will be illustrated with brief examples. Step 1: Select a Subject Step 2: Narrow the Subject into a Topic Step 3: State the Objective Step 4: Make a Preliminary Bibliography Step 5: Prepare a tentative Working Outline Step 6: Take Notes Step 7: Prepare a Final Outline Step 8: Write a Draft Step 10: Prepare Final Copy STEP 1: SELECT A SUBJECT To select a subject for a term paper, ask yourself the following questions: • • • • • Am I interested in the subject? Is the subject appropriate for my class? Is the subject too broad? too limited? Is the subject manageable in terms of length and deadline for completing the paper? Is the subject likely to be covered adequately in books, journals, or newspapers? your answers should be YES to most of these questions. Try to choose a subject you are interested in and will enjoy researching. In some courses, your instructor may give you a choice from a list of......

Words: 7480 - Pages: 30

Free Essay

Financial Market and Institutions

...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......

Words: 1007 - Pages: 5

Free Essay

Financial Institutions and Financial Markets

...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......

Words: 1111 - Pages: 5

Premium Essay

Financial Markets and Institutions

...------------------------------------------------- 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......

Words: 1657 - Pages: 7