The Function Of Financial Institutions
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Financial institutions are cornerstones in the financial market. They provide five fundamental services that are needed to create efficiency within the market. The services are denomination divisibility which means producing financial claims of varying dollar amounts, currency transformation which is buying financial claims denominated in one currency and selling financial claims denominated in another, maturity flexibility which is creating financial claims with a wide range of maturities.
Credit risk diversification which is diversifying risk more efficiently than individual lenders might be able to on their own and liquidity which is buying direct financial claims with low liquidity and issuing indirect financial claims with more liquidity. When all of these services are in full swing then the conditions for the best forex trading can take place. The money markets are a collection of markets in which commercial banks and businesses adjust their liquidity positions by borrowing or lending for shorter periods of time.
The Federal Reserve System conducts monetary policy in the money markets and the US Treasury uses the market to finance the day-to-day operations of the federal government. The most important money market security our treasury bills, negotiable certificates of deposit and commercial paper. The capital markets are where business firms obtain funding for long-term investments such as forex trading tips are where consumers finance purchases of long-term assets. Capital markets securities are long-term and typically involve more risk than money market securities. The most important capital markets securities are corporate stock, treasury bonds and residential mortgages.
financial institutions are profit maximizing businesses that earn profits by acquiring funds at interest rates lower than they earn on the assets. the nature and characteristics of the financial claims they hold expose them to a variety of risks. The major risks that financial institutions face our credit was, interest rate risk, liquidity risk, foreign exchange risk and political risk. As a trader it would be wise to learn as well.
The Importance of Finance
by Freshak on February 9, 2012
Why Finance is important to the economy
From a macro perspective, Finance is merely the practical application of economics. The Financial System is the means by which an economy allocates money to its highest valued use. In English, it is how people, businesses, and governments raise the cash needed to do business. The goal of any financial system is to make sure that those with good ideas get the money necessary to implement the ideas. How this is accomplished in a market-based economy is through the stock and bond markets. In a market-based economy, investors invest in a firm (by firm here I am merely simplifying, the “firm” could be a government or organization as well) and the firm takes the investment and uses it to implement the business ideas. People do not give money without the expectation of getting something in return. (However, if you are the sort of person who merely likes to give money away, please contact me!) If money is given, something is expected back in return. In this case more money. The way to get the most money back is to invest in firms that will put the money to the best use. Of course others know this as well. As more invest with a firm the value of the firm’s stock rises. In competition for more money, firms will strive to find better investments. This leads to economic growth, more jobs, and hopefully a higher standard of living. Why Finance is important to individuals
Just like a company, we all need money. We need money to live (food, clothing, shelter) and we probably want money for a great number of things (concert tickets, cars, computers, etc.). Thus we need to get money. Finance...
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