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Financial Markets

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10 views2 pages

Financial Markets

Uploaded by

anamulhaqahmedshah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Financial Markets

Financial markets refer broadly to any marketplace where securities trading occurs, including the
stock market, bond market, forex market, and derivatives market. Financial markets are vital to the
smooth operation of capitalist economies.

Financial markets play a vital role in facilitating the smooth operation of capitalist economies by
allocating resources and creating liquidity for businesses and entrepreneurs. The markets make it
easy for buyers and sellers to trade their financial holdings.

Financial markets create securities products that provide a return for those with excess
funds (investors/lenders) and make these funds available to those needing additional money
(borrowers).

The stock market is just one type of financial market. Financial markets are created when people buy
and sell financial instruments, including equities, bonds, currencies, and derivatives.

The primary stock market is where new issues of stocks are sold. Any subsequent trading of stocks
occurs in the secondary market, where investors buy and sell securities they already own.

Financial Institutions:

A financial institution is an organization that provides financial services to individuals, businesses,


and governments. These institutions act as intermediaries between savers and borrowers, facilitating
the flow of funds and managing risk.

A financial institution (FI) is a company engaged in the business of dealing with financial and
monetary transactions such as deposits, loans, investments, and currency exchange. Financial
institutions include a broad range of business operations within the financial services sector,
including banks, insurance companies, brokerage firms, and investment dealers.

Financial institutions often match savers' or investors' funds with those seeking funds, such as
borrowers or businesses. Typically, this leads to future payments from the borrower or business to
the saver or investor.

At the most basic level, financial institutions allow people to access the money they need. For
example, although banks do many things, their primary role is to take in funds—called deposits—
from those with money, pool the deposits, and lend the money to others who need funds. Banks are
intermediaries between depositors (who lend money to the bank) and borrowers (who the bank
lends money to).

What Is a Financial Intermediary?

A financial intermediary is an entity that acts as the middleman between two parties in a financial
transaction, such as a commercial bank, investment bank, mutual fund, or pension fund. Financial
intermediaries offer a number of benefits to the average consumer, including safety, liquidity,
and economies of scale involved in banking and asset management.

Key Points:

• Financial intermediaries serve as middlemen for financial transactions, generally between


banks or funds.

• These intermediaries help create efficient markets and lower the cost of doing business.
• Financial intermediaries offer the benefit of pooling risk, reducing cost, and providing
economies of scale, among others.

How a Financial Intermediary Works

A non-bank financial intermediary does not accept deposits from the general public. The
intermediary may provide factoring, leasing, insurance plans, or other financial services. Many
intermediaries take part in securities exchanges and utilize long-term plans for managing and
growing their funds. The overall economic stability of a country may be shown through the
activities of financial intermediaries and the growth of the financial services industry.

Financial intermediaries move funds from parties with excess capital to parties needing funds. The
process creates efficient markets and lowers the cost of conducting business. For example, a
financial advisor connects with clients through purchasing insurance, stocks, bonds, real estate, and
other assets.

Banks connect borrowers and lenders by providing capital from other financial institutions.
Insurance companies collect premiums for policies and provide policy benefits. A pension fund
collects funds on behalf of members and distributes payments to pensioners.

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