Manufacturer financials instruments CDs saving/checking accounts & loans Banks buy money (take deposits) and then resell it at a higher price (making loans/selling securities) so in effect banks manufacture money and their raw material money, like selling a used car, buy it at a low price clean it up and sell it higher. Liabilities of banks is their source of funds, and their assets are the way they use the funds. P 214
SOS In its simplest form, a repurchase agreement is a collateralized loan, involving a contractual arrangement between two parties, whereby one agrees to sell a security at a specified price with a commitment to buy the security back at a later date for another specified price. In essence, this makes a repurchase agreement much like a short-term interest-bearing loan against specific collateral. Both parties, the borrower and lender, are able to meet their investment goals of secured funding and liquidity. Repurchase agreements are used by money market funds to invest surplus funds on a short term basis and by dealers as a key source of secured funding. Securities dealers use these deals to manage their liquidity and finance their inventories. While repurchase agreements are commonly found within money market funds as short term, mostly overnight investments, the cash investor might look to invest cash for a more customized period of time to fulfill a specific investment need. As these transactions are short term and considered relatively safe due to the secured collateral, market liquidity and rates remain competitive for all investors.
The differences between brokers/dealers & what it means for their risk levels 1. A broker is a person who executes the trade on behalf of others, whereas a dealer is a person who trades business on their own behalf. 2. A dealer is a person who will buy and sell securities on their account. On the other hand, a broker is one who will buy and sell securities for their clients. 3. While dealers have all the rights and freedom regarding the buying and selling of securities, brokers seldom have this freedom and these rights. 4. A broker's primary service is to buy and sell stocks on an exchange for members of the investing public who wish to own part of a company. When anyone decides to participate in the stock market, a broker is usually the first place they go. An account is set up for the client through which she trades stocks. The broker accepts stock orders from the client and then executes these directly on the exchange. A business that engages solely in broker services interacts with the stock market for its clients only. Every transaction made affects a client's account. For this reason, a broker is often referred to as an "agent."
5. A broker (no assets & act as a middleman) is normally paid a commission for transacting the business but not a dealer. Dealers have assets of their own that they sell at a later date. A stock market dealer trades equities under its own name. The business itself maintains stock holdings that are not in the name of any client. The dealer may actually be a client of another broker, so as to trade these stocks for its own account. However, unlike a "trader," which maintains her own account with a broker that affects no one else, a "dealer" may use its portfolio to offer services to the public.
SOS Risk Since a broker is working for the public or an individual the risk is much higher because your reputation and trade are on the line. If you execute a trade inappropriately then you are putting yourself at risk because you cannot know how happy the customer is going to be. If you were a dealer for example and you made a mistake or mismatched something, you can easily forgive yourself and not lose a client however if you mess up an exchange as a broker you’re less likely to have people use your services in the future. Every transaction you make as a broker effects...