Financial Markets and Institutions Overview

A financial market where corporations raise new funds by issuing securities, such as stocks or bonds.

A financial market where previously issued securities are traded among investors.

A financial security whose value is derived from another underlying asset, like stocks or bonds.

The process of reducing risk by investing in a variety of assets.

A financial institution that acts on behalf of smaller investors, collecting information and investing funds.

Financial claims issued by a financial institution, that are more attractive to investors than the original claims issued by corporations.

A financial institution whose primary assets are loans and liabilities are deposits. They offer a wide range of loan products, including consumer, commercial, and real estate loans.

Short-term debt instruments issued by the U.S. government.

Short-term loans that banks make to each other, usually for less than one day.

An agreement where one party sells securities with a promise to buy them back at a specified price and date.

Short-term unsecured promissory notes issued by companies to raise cash.

A time deposit issued by a bank that pays a fixed interest rate and can be traded.

A time draft guaranteed by a bank, payable to a seller of goods.

Long-term debt obligations used to finance the purchase of commercial real estate.

Debt obligations that represent claims on a pool of mortgages.

Markets where long-term securities are traded between borrowers and lenders.

Securities firms act as intermediaries between financial institutions (surplus units) and those needing funds (deficit units).

Large investors like insurance companies and pension funds can influence corporate management by using their ownership to advocate for shareholder interests.

Depository institutions, like banks, transform deposits from savers into loans for borrowers. This is a key part of how financial markets channel funds.

Finance companies raise funds by issuing commercial paper and then use those funds to provide loans to borrowers, helping to facilitate financial transactions.

Mutual funds collect money from investors and use it to buy various securities, giving individuals access to diversified investments and helping fund deficit units.

The extent to which a country's financial markets are developed and efficient. It includes factors like access to capital, liquidity, variety of financial instruments, and regulatory framework.

The level of uncertainty about the true worth of a security. It can be influenced by factors like information asymmetry, market volatility, and economic conditions.

The amount of money flowing from investors with excess funds to those who need funds. This can be influenced by prevailing interest rates, investor confidence, and economic growth.

When the manager of a company has more information about its financial health than investors. This difference in information can lead to unfair advantages.

The risk that the actual return on an investment will deviate significantly from the expected return. Higher uncertainty about a security's value typically means higher risk.

The ability of investors and businesses to access financial markets in different countries. It's facilitated by technology, globalization, and regulatory cooperation.

The role of the foreign exchange market in facilitating international financial transactions. It allows for the conversion of one currency to another.

Under favorable economic conditions, international financial markets facilitate easier access to funding for governments and businesses from global investors.

Under unfavorable economic conditions, financial problems in one country can spread to other countries due to interconnectedness in global markets.

The market where currencies are traded. Exchange rates are determined by supply and demand.

The ability of financial institutions to collect information efficiently from a large number of sources, reducing the average cost per unit of information.

Financial institutions offer financial claims with higher liquidity than initial investments, allowing investors to easily access their funds.

Financial institutions provide better prices and lower risks for savers compared to direct investment in the underlying assets.

Financial institutions can leverage their size to lower the transactions costs associated with buying and selling assets.

The ability for FIs to manage different maturities of assets and liabilities to minimize risks.

FIs allow small investors to participate in investments despite large minimum investment requirements.

Depository institutions act as a bridge for monetary policy to influence the overall financial system and economy.

FIs often provide the main, and sometimes only, source of financing for specific sectors.

FIs, especially insurance companies and pension funds, help individuals transfer wealth across generations.

The efficiency of payment services provided by depository institutions benefits the overall economy.