Any individual or any organisation at some point of time can face a situation of where they feel having an excess amount of funds with them and sometime lack of funds. In case the organisation is having over flow of funds then it is not considered a wise idea to just keep that extra fund unutilized with you instead investing that excessive fund or using it for lending purposes sounds better. On the other hand, the organisations facing shortage of money or financial crisis will get benefitted by borrowing these funds. Financial Markets and Institutes homework solutions are the ideal solution in this case!
Henceforth, Excess amount of funds and lack of funds leads to the need of lending of funds in former case and borrowing of funds in later case.
But this process of trading of funds is not that easy as it sounds because there are plenty of things to be considered. This leads to the requirement of organisations that can help them in this process. These organisations are called financial markets and institutes.
Understanding Financial Markets and Institutes
Financial markets in a precise way can be described as a market place where buyers and sellers take participation in trading of financial securities.Financial markets play a vital role in channelizing of funds by providing a platform for lenders to lend their surplus funds to the borrowers facing shortage of funds.
To check and regulate the financial transactions and maintaining a transparent pricing, financial institutions are required. Almost every person uses these financial services at some point in time. Financial institutions are organisations involved in collection of funds from lenders and distribution or lending of these funds to borrowers, acting as a mediator between the two agents. Financial Markets and Institutes homework solutions are the perfect solution in this case!
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- Vast curriculum
Just provided a brief description of financial markets and institutes but actually it is a very vast topic on which various books has been written till now.Financial markets and institutes contribute major part of an economy, so getting knowledge about each and every aspect is mandatory but not simple.
- Difficult to Understand
Due to complex structure of financial markets and institutes, it becomes extremely difficult to actually get a clear understanding of this topic. Students find this subject a little complicated and sometimes drop studying this subject further.
- Lack of classroom study
Studying this topic need a lot of concentration, but while studying in classroom it gets little challenging to just focus on the topic.
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Need for Financial Institutions
The urge of exchange and distribution of money in an economy in transparent and ethical way finally structured financial markets and Institutes.
Lending money and borrowing money is a matter of trust and credibility because it involves transaction of funds. Lending money directly to borrowers can be risky because lender, in this case, is completely unaware of the borrower and his ability and willingness to pay funds back.
Here arises the need of an organisation that can intervene between these lenders and borrowers can assess the creditworthiness of borrowers and monitors the borrower’s activities afterword. Financial institutions are framed to fulfil all these requirements. Financial intuitions act as an intermediate between lender and borrower and increase the trustworthiness in transactions. Because of this reason financial institutions are also called Financial Intermediaries. As a student, you will get better understanding via Financial Markets and Institutes homework solutions.
Categorization of Financial Markets
- Capital Market and Money Market
Capital Market refers to the markets where financial securities i.e. debt and equity securities are traded onlong-term basis, generally for more than 1 year.
Money markets focus on managing liquidity by lending and buying assets for short term basis, for 1 year or less.
Further Capital markets can be divided into Primary Market and Secondary Market.
- Primary Market and Secondary Market
Primary market is known for the newly issued financial securities like shares and bonds created and traded for the first time without using any intermediaries like exchange in the process.
Secondary market is basically known as aftermarket where the existing financial securities such as stocks, bonds, future are traded among lenders. Secondary market can be referred as a market where bulk of exchange trading happens.
Categorizations of Financial Institutions
- Depository Institutions – Depository institutions directly collects money from the depositors and then lend this money to borrowers, thus acting as a financial intermediate. Some of the depository institutions are listed below.
- Commercial Banks
- Savings and loans association
- Mutual Saving banks
- Credit Union
- Specialized banks
These depository institutes hold a great importance in any economy, making that economy more fair and transparent for both lenders and borrowers and encourage credibility while trading. With the help of these intermediates, lenders can invest or lend their money without much worrying about the creditworthiness of borrowers and hence Depository institutions actually mitigate the risk involved in the trading process.
- Non-Depository Institutions – Non-Depository institutions, on the contrary, collects money in terms of premiums, contributions or by selling securities for specific purposes and then invests this money for higher returns. Some non-depository institutions are listed below.
- Insurance companies
- Pensions funds
- Security firms
- Finance companies
These financial institutions are regulated by government agencies. The Government agency also formulates rules and regulations for these institutions and keeps a check on their monetary transactions a well.
Financial institutes being involved in mediation also gets profited by earning high returns on the investments done. The assets of any financial institutions include loan, stock, bonds and real estate, on the other hand,liabilities, include all the obligations like deposits, insurance policies and pensions payouts.
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