Financial Markets and Institutions, Part 2 - Essay Example

Financial institutions on the other hand makes the trade to run smoothly through rendering of loans, grants and other financial aids to firm and individual. Additionally, financial bodies accept the deficit units therefor enabling investors to access capital to establish companies and industries. Question 1. Analyze the role financial market playing creating economic wealth in the U.S. In the economy of United States of America financial markets plays several roles. This markets are usually seem to the backbone to American economy this is because many people in this country are wealth merchants who spend most of their time in business activities.

With respect to their economy, trader maximizes the financial markets opportunity wisely in order to stabilize the economy of this country. The financial markets controls and transfers money from the persons with excess money with the needy ones. They help the students from difference institution to get loan, which they use to pay their school fees, it also helps the government to get capital for its expenditure, business people are able to get funds and expand their operations. In order financial market to have funds to rent to the needy persons, business and households should be willingly to supply the excess funds to the financial market. . Financial market gives them money in order they can use.

For instance, student who are deficit units often borrows money from the financial markets to support themselves through their academic period, therefore in return after they get employed the excess/surplus tend to become surplus units through investment. But, after some years they may become deficit units by purchasing valuables such as homes. This is because at this duration they may be able to access good amount of money from financial institution (Madura, 2012). Investors access money from financial market through dispensing of securities which act as claim on the issuer.

Borrowed funds are represented as debt thus they are known as debt securities. The excess unit that are bought as debt securities are called creditors because they get interest according to the basic duration. All debt securities have the maturity date, the time in which surplus units can be accessed or redeemed in order to earn the principal value from the deficit units. Another, type of security is an equity security also known as stock. Stock represents the owner of a business. Most of the business prefer to give stock more than debit security if they require money, nevertheless the required fund sometimes might not be financially able to make a periodic payments on interest for the debt securities (Madura, 2012).

Financial markets are classified according to the amount of fund they give inform of loans and grants. These classifications involves, primary versus secondary markets, accommodating corporate finance need and finally accommodating investment needs. Primary verses secondary market supports an issuance of current securities where else secondary markets enable the existing businesses to grow that results to smooth