Question

Why are financial markets essential for a healthy economy and economic growth?

What are financial institutions?

Describe each and give an example of who may use them:

Investment banks

Commercial banks

Financial services corporations

Pension funds

Mutual funds

Answer 1

They might sound confusing, but financial markets basically exist to bring people together so money flows to where it is needed most.

Think of companies like eBay, which match buyers and sellers to set a price for everything from second-hand furniture to the new iPhone. Financial markets match buyers and sellers to set a price for financial assets.

Financial markets provide finance for companies so they can hire, invest and grow.

For example, Apple started in a garage in California. While it had some great ideas, it needed money to make them happen.

In 1977, it persuaded a single investor to loan the company $250,000. Over time, the company grew and less than five years later it was able to borrow over $100 million from financial markets by selling shares in the company.

Apple is now worth hundreds of billions of dollars and employs over 100,000 people.

So, when they work well, financial markets can make the country much better off.

A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange. Financial institutions encompass a broad range of business operations within the financial services sector including banks, trust companies, insurance companies, brokerage firms, and investment dealers. Virtually everyone living in a developed economy has an ongoing or at least periodic need for the services of financial institutions.

√An investment bank is a financial services company or corporate division that engages in advisory-based financial transactions on behalf of individuals, corporations, and governments. Investment banks' clients include: Governments – Investment banks work with governments to raise money, trade securities, and buy or sell crown corporations

√A commercial bank is a type of bank that provides services such as accepting deposits, making business loans, and offering basic investment products that is operated as a business for profit. The basic role of a commercial bank is to provide financial services to the general public, businesses, and companies

√A firm which offers a wide range of financial services, including investment banking, brokerage operations, insurance, and commercial banking is known as financial services corporation. An example of financial service industries are banks, savings institutions, credit unions and credit card companies

√A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme that provides retirement income. Pension funds are pooled monetary contributions from pension plans set up by employers, unions, or other organizations to provide for their employees' or members' retirement benefits.

√A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds.