Role of Financial Markets in Creating Economic Wealth in the U.S.

Topics: Money market, Finance, Monetary policy Pages: 5 (1855 words) Published: June 8, 2014
Analyze the role financial markets play in creating economic wealth in the U.S. The strength of US economy lies in the financial analysis of its system, from primary to secondary market. The economy draws a strong focus on liquidity performance and activities such as bonds, securities and stocks. Each of these investment portfolios has varieties and levels of risks associated to its returns and earnings. They are traded at various levels of financial structures ranging from Bonds, Mortgages, Mortgage-Backed Securities, and stocks in the bonds market, department of treasury and stock exchange market such as NYSE. Tyranski(2008) described the NYSE as a body or institution that has the strictest financial regulatory standard worldwide with a strong call on the US society to take a responsible support towards this market. The NYSE is one of the most vital areas of a market economy as they provide companies with access to capital. This market can be split into two main sections: the primary market and the secondary market. Bond Markets is a debt investment in which an investor loans money to an entity, corporate or governmental, which borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. Bonds can be bought and sold by investors on credit markets around the world. The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposits (CDs), bankers acceptances, U.S. Treasury bills, commercial paper, municipal notes, Eurodollars, federal funds and repurchase agreements (repos). Money market investments are also called cash investments because of their short maturities. The money market is used by a wide array of participants, from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term. The money market is a safe place to put money due the highly liquid nature of the securities and short maturities. They are extremely conservative; money market securities offer significantly lower returns than most other securities. The cash market is complex and delicate, and generally not suitable for inexperienced traders. The cash markets tend to be dominated by so-called institutional market players such as hedge funds, limited partnerships and corporate investors. The very nature of the products traded requires access to far-reaching, detailed information and a high level of macroeconomic analysis and trading skills. The secondary market is where the bulk of exchange trading occurs each day. Primary markets can see increased volatility over secondary markets because it is difficult to accurately gauge investor demand for a new security until several days of trading have occurred. In the primary market, prices are often set beforehand, whereas in the secondary market only basic forces like supply and demand determine the price of the security. Provide a general overview of each of the three (3) securities you chose. Be sure to include such information as name, company it represents (if applicable), pricing and historical performance. Capital markets facilitate the sale of long term securities by deficit units to surplus units. The securities traded in this market are the capital market securities. Capital market securities are issued to finance the purchase of capital assets like buildings, equipment or machinery. The three common capital market securities are bonds mortgages and stocks. Bonds are a long term debt security and are issued by the Treasury, government agencies and corporations. They issue a return to investors in...

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Brigham, E., F (1991). Financial Management: Theory and Practice. Fort Worth: Dryden Press.
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O 'Neill, K. M. (2012). Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change
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