Finance Instutions
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A financial market is a market where financial assets are traded i.e. financial assets are created or transferred in such market. There are different types of financial markets such as money market, capital market and forex market. Money market is the market which deals in the trading of low risk, highly-liquid, short-term instrument. This market is dominated mostly by government, banks and financial institutions. Cpaital Market is the market which deals with the trading of securities and bonds that are long term investments. Forex Market deals with multicurrency requirements, which are met by the exchange of currencies. Depending on the exchange rate that is applicable, the transfer of funds takes place in this market.
The major functions of Financial Markets are:
Borrowing and Lending: Borrowing and lending of funds for the purpose of investment and consumption is one of the main function of Financial Market.
Price Determination: Financial markets helps is determining the price of financial assets, stock which are issued newly or are existing.
Information Aggregation and Coordination: Financial markets act as collectors and aggregators. They collect and aggregate information about financial asset values and the flow of funds from lenders to borrowers.
Risk Sharing: Financial markets helps in transferring the risk through investment in several securities, bonds or mutual funds from those who undertake investments to those who provide funds for those investments.
Liquidity: Financial markets provide the holders of financial assets with a chance to resell or liquidate these assets.
Efficiency: Financial markets reduce transaction costs and information costs.
Stock Market is a part of capital market which deals in trading of securities of companies. Main function of Stock market is:
Provides a market for the trading of securities to individuals and organizations seeking to invest their saving or excess funds through the purchase of securities
Important source for raising money
Provides Liquidity
Works as an important source for economic stability and growth.
Central banks play important role in providing the economic growth and stability of the country. The roles of the central banks are as follows:
Central bank is the main bank which helps in providing monetary policy which includes economic growth, low inflation, and stability of the currency.
Helps in macroeconomic stability, which is related to the domestic inflation and the foreign exchange rate.
Helps in the management and financial health of financial institutions.
Provides certain developmental activities such as credit guarantee, insurance, capital management, lending, facilitating interest rates
Favouring financial liberalization
Helps in facilitating the money supply
24. In United States, financial institutions can be classified into the following four categories: “brokers;” “dealers;” “investment bankers;” and “financial intermediaries.”
Brokers: A broker one who facilitates trading by locating