Question

Distinguish the differences between functions of financial institutions and financial markets. 6m (200 words)

Answer 1

FINANCIAL INSTITUTIONS ACTS AS FINANCIAL INTERMEDIARIES BETWEEN LENDER AND BORROWER.THEY ARE FOR THE SMOOTH FUNCTIONING OF THE FINANCIAL SYSTEM OF A COUNTRY.THEY CAN ACCEPT DEPOSITS AND MAKES LOANS.FINANCIAL INSTITUTIONS CAN BE CLASSIFIED AS BANKING SECTORS AND NON BANKING SECTORS.BANKING SECTORS INCLUDES NATIONALISED BANKS,COMMERCIAL BANKS ,COPERATIVE BANKS AND RURAL BANKS.NON BANKING SECTORS INCLUDES THE FINANCIAL INSTITUTIONS OTHER THAN BANKS.

FINANCIAL MARKETS ARE ALSO MEANT FOR THE SMOOTH FUNCTIONING OF FINANCIAL SYSTEM.THEY ARE MEANT FOR THE BUYING AND SELLING OF FINANCIAL INSTRUMENTS SUCH AS SHARES ,BONDS,CDs,BILLS ETC.FINANCIAL MARKET COMPRISES OF MONEY MARKET,CAPITAL MARKET,,FOREIGN EXCHANGE MARKET,FINANCIAL MORTGAGE MARKET,FINANCIAL GUARANTEE MARKET.MONEY MARKET IS MEANT FOR SHORT TERM FUNDS,CAPITAL MARKET FOR LONG TERM FUNDS,MORTGAGE MARKET FOR MORTGAGE LOANS,FINANCIAL GUARANTEE IS A SERVICE MARKET.FOREIGN EXCHANGE FOR FOREIGN CURRENCY TRANSACTIONS.