Professional Documents
Culture Documents
Introduction
• Primary Markets
– markets in which users of funds (e.g.
corporations, governments) raise funds by
issuing financial instruments (e.g. stocks and
bonds)
• Secondary Markets
– markets where financial instruments are traded
among investors (e.g. NYSE, NASDAQ)
• Money Markets
– markets that trade debt securities with
maturities of one year or less (e.g. CD’s, U.S.
Treasury bills)
• Capital Markets
– markets that trade debt (bonds) and equity
(stock) instruments with maturities of more
than one year
1500
1000
500
0
1990 2000 2004
15000
10000
5000
0
1990 2000 2004
Corporate stocks Mortgages Corporate bonds
Treasury Securities State & Local Govt. bonds U.S. Govt agencies
FI
Users of Funds Suppliers of Funds
(Brokers)
Cash FI
Cash
(Asset
transformers)
Financial Claims Financial Claims
(Equity and debt securities) (Deposits and insurance policies)
• Commercial banks
– depository institutions whose major assets are
loans and major liabilities are deposits
• Thrifts
– depository institutions in the form of savings
and loans, credit unions
• Insurance companies
– financial institutions that protect individuals
and corporations from adverse events
(continued)
McGraw-Hill/Irwin 1-14 ©2007, The McGraw-Hill Companies, All Rights Reserved
• Securities firms and investment banks
– financial institutions that underwrite securities
and engage in securities brokerage and trading
• Finance companies
– financial institutions that make loans to
individuals and businesses
• Mutual Funds
– financial institutions that pool financial
resources and invest in diversified portfolios
• Pension Funds
– financial institutions that offer savings plans for
retirement
McGraw-Hill/Irwin 1-15 ©2007, The McGraw-Hill Companies, All Rights Reserved
Services Performed by Financial
Intermediaries
• Monitoring Costs
• Liquidity and Price Risk
• Transaction Cost Services
• Maturity Intermediation
• Denomination Intermediation