continuation

• Primary markets: where securities are created and sold for the first time
• Secondary markets: where existing securities are bought and sold among investors
• Money markets: deal with short-term debt instruments, usually less than a year
• Capital markets: deal with long-term debt and equity instruments, usually more than a year
• Foreign exchange markets: financial market for trading one currency for another
• Derivative security markets: financial market for exchanging derivative instruments or agreements between two parties
• Financial institutions channel funds from those with surplus funds to those with shortages of funds
• Types of financial institutions:

  • Commercial Banks
  • Thrifts
  • Insurance Companies
  • Securities firms and investment banks
  • Finance Companies
  • Mutual funds
  • Hedge funds
  • Pension funds
• Commercial Banks:

  • Major assets are loans
  • Major liabilities are deposits
  • Liabilities include non-deposit sources of funds
• Thrifts:

  • Form of savings associations, savings banks, and credit unions
  • Concentrate loans in one segment, such as real estate or consumer loans
• Insurance companies:

  • Protect individuals and corporations from adverse events
  • Include life and non-life insurance
• Securities firms and investment banks:

  • Help firms issue securities
  • Engage in activities like securities brokerage and trading
• Finance companies:

  • Make loans to individuals and businesses
  • Rely on short- and long-term debt for funding
• Mutual Funds:

  • Pool financial resources of individuals and companies
  • Invest in diversified portfolios of assets
• Hedge Funds:

  • Pool funds from wealthy individuals and investors
  • Keep a large proportion of any upside return and charge a fee
• Pension Funds:

  • Participants accumulate savings during working years
  • Withdraw savings during retirement years