Financial Institutions and Markets

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FIN 370

Financial Markets and Institutions Report

Financial institutions are establishments that conduct financial transactions. These include commercial banks like JP Morgan Chase, investment banks like Morgan Stanley, and mutual funds like Fidelity. Financial markets manage the course of funds from both investors and borrowers.

Financial institutions provide services that most of us use on a regular basis. Financial institutions provide financial services that must take place through these establishments. Services such as deposits, loans, investments, money exchange, and transactions. Financial institutions assist the flow of funds by suppliers of funds and demanders of funds. Financial Institutions operate financial markets. This operation allows organization to effectively and affordably manage their funds. Financial institutions also play another crucial role in our economy by spreading the risk between market participants. Basically, banks provide credit to encourage growth, which our economy needs, liquidity, and risk management.

Financial markets are markets in which the buyers and sellers exchange assets such as stocks, bonds, and equity. Both financial institutions and financial markets play a key role in our economy. The two combined help to efficiently manage the flow of funds in a way that will benefit both lenders and the borrowers. There are two types of financial markets; primary versus secondary markets, and money versus capital markets.

Primary markets provide forums where demanders like corporations make money by distributing tradeable assets like stocks or bonds. This happens regularly. Organizations have projects which need funds in order to produce their new projects and many times these organizations do not have the funds. Therefore, they need to find a way to acquire funds. The corporations then sell either stocks or bonds to the public in exchange for money used to fund their new projects. Primary market transactions are conducted in financial institutions called investment banks, Merrill Lynch for example is a well-known investment bank.

Secondary markets are the re-sale and purchase of stocks and bonds that were firs issued by primary markets. These markets are accessible to the public and is when individuals are able to purchase stocks or shares pertaining to organizations.  The main difference between primary and secondary markets is that primary markets offer new stocks for sale which company and investors are conducting business and secondary is where those same shares are being re-sold by investors to investors. Secondary markets are no longer dealing directly with the company who is issuing these shares. The transactions are now being conducted among the investors themselves. Primary markets are sold at a fixed rate where secondary market shares vary in cost according to the demand and supply of the shares being exchanged. Another difference is that in the primary market shares can only be sold once whereas in secondary markets they can be sold many times.

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