Financial markets and institutions

Definition

Financial markets and institutions refer to venues and entities that facilitate the exchange of financial assets and the provision of financial services. They play a crucial role in ensuring liquidity, price discovery, and efficient allocation of resources in an economy.

5 Must Know Facts For Your Next Test

1. Financial markets can be categorized into money markets (short-term) and capital markets (long-term).
2. Institutions like banks, insurance companies, mutual funds, and pension funds are key players in financial markets.
3. Primary markets deal with new securities issuance, while secondary markets handle the trading of existing securities.
4. Financial institutions help in risk management by offering various financial instruments like derivatives.
5. Regulations by bodies such as the SEC (Securities and Exchange Commission) ensure market integrity and protect investors.

Review Questions

• What are the main differences between money markets and capital markets?
• Which institutions are considered major players in financial markets?
• What roles do primary and secondary markets play in finance?

Related terms

Money Market: Short-term financial market where instruments like Treasury bills, commercial paper, and certificates of deposit are traded.

Capital Market: Long-term financial market for buying and selling equity-backed securities such as stocks and bonds.

Primary Market: The part of the financial market where new securities are issued directly from companies to investors.