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organizations needing money with those having surplus funds. In other
words, the purpose of the financial system is to transfer funds from savers to
the borrowers in the most effective and efficient possible manner. And that
job can be done by direct financing or by indirect financing. Despite the
method of transferring the resources the objective is to bring the involving
parties together at the lowest possible cost.
b. Indirect financing: A problem that arises from direct financing brought the
usage of indirect financing. Sometimes the savers or surplus units can’t
wait to hold financial claims till maturity date therefore they sell the
financial claims to the financial intermediation and take their funds from
them to do whatever they please.
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Business e-Bulletin
Vol. 1, Issue 1, 2009, 1-5
1. Commercial banks are the major institutions that lend money, handle
checking accounts, and also provide an ever-widening range of services,
including stock brokerage services and insurance. Commercial banks are
the largest and most diversified institutions on the basis of range of
assets held and liabilities issued.
2. Thrift Institutions - Mutual savings and savings and loan associations are
commonly called thrift institutions. They serve individual savers and
residential and commercial mortgage borrowers, take the funds of many
small savers and then lend this money to home buyers and other types of
borrowers.
4. Mutual funds sell equity shares to investors and use these resources to
purchase stocks or bonds. These organizations pool resources and thus
minimize risks through diversification. They also achieve economies of
scale in analyzing securities, managing portfolios, and buying and selling
securities.
5. Life insurance companies take savings in the form of premiums and then
invest these funds in bonds, stocks, mortgages, real estate and so on,
and then make payments to beneficiaries.
6. Pension funds are retirement plans obtain their funds from employers and
employees and administered generally by the trust departments of
commercial banks, or by life insurance companies. Pension funds invest
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their money primarily in stocks, bonds real estate and mortgages like
insurance companies.
There are many different types of financial markets. Each market exists to
serve a different region or deals with a different type of security. Here are
some of the major types of markets:
1. Physical asset markets also called tangible or real asset markets are those
market that are traded for such products as wheat, autos and real estate.
2. Financial asset markets deal with stocks, bonds, notes, mortgages, and
other claims on real assets.
3. Spot markets and futures markets are terms that refer to whether the
assets are bought or sold for “on-the-spot” delivery or for transfer at
some upcoming date.
4. Money markets are the markets for debt securities with maturities of less
than one year.
5. Capital markets are the markets for long-term debt (more than a year)
and corporate stocks.
6. Primary markets are markets in which corporation raise new capital such
as initial public offering (IPO).
CONCLUSION
BIBLIOGRAPHIES
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Business e-Bulletin
Vol. 1, Issue 1, 2009, 1-5