Financial Institutions and Markets

Financial Institutions and Markets

Financial Markets

Financial Market collects cash in favor of applicants and placement of securities such as shares, bonds, investment certificates and other financial products. Also on this market place previously issued securities transactions between sellers of securities who wish to recover their money-capital advanced and different buyers who intend to invest. Shares are securities representing part the share capital of a joint stock company. Nominal value or share price is determined by dividing the number of capital shares issued by a company. Bonds are securities that represent a share of a collective loan, medium or long term requested by an operator. The nominal value of the bond shall be returned to the holder at maturity, and the entire period of the loan, it will receive a fixed annual interest rate stated on the bond (Berger, 1997).

For a normal course of business, businesses need long-term loans to finance their investments. These can be purchased equity funds in the financial market. Supply of capital is made to holders of financial resources by placing these resources in the capital market by purchasing securities. Money capital holders are companies, banks, individuals and businesses (Campbell, 1997).

Classification of Financial Markets

Primary financial market is the market on which they place new securities issues. Transactions are done through banks and identify the nominal value. Secondary financial market is to ensure transactions in securities previously issued. In this market, transactions are done through stock exchanges. The rate at which transactions are on the market depends on several factors such as:

Relationship between supply and demand for securities

Commercial bank interest rate

Economic and financial situation of the company expressed through profit
The national economy

Political and social situation and international

Basis of Financial Markets

Companies, businesses, individuals and the state as often need capital. Suppose Mr. X, the owner of a local electronics store, decides to expand her business and open stores in other cities. More than likely it does not have the amount required to open a chain of stores, so you will need to purchase the capital market. Or suppose that a family wants to buy an apartment that costs $ 75,000, but has only $ 15,000 in the form of savings how can get $ 60,000 difference? And if Bucharest administration wants $ 50 million for a new water treatment plant or the government needs $ 1 billion to cover the projected deficit for 2009 should call for capital from external sources. On the other hand some individuals and companies have higher incomes than their current costs so that there are funds available to be invested in the form of cash or securities.

Role played by Financial Institutions

International Financial Institutions have played a significant role in improving the economic conditions of countries globally. These institutes have emphasized on balanced expansion of global trade, stabilization of exchange rates, avoidance of competitive devaluation of the currency values, and correction of balance of payments to reduce poverty in countries. International Financial Institutions which have played a ...