Financial markets and institutions - functions of financial markets and intermediaries

15 important questions on Financial markets and institutions - functions of financial markets and intermediaries

What is the job of a financial intermediary?

- a financial intermediary is an intermediary between the investors and the borrower/spender
these are organizations who get money from investors and with that money they finance individuals, companies and other organisations

What is a financial institution?

a bank, insurance company or similar financial organization
this is also an financial intermediary

What is the financial market?

this is the place where people can invest directly into the organisation they want to invest in by buying shares.
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Why is a mutual fund better for people with not a lot of money?

with the mutual fund they have to put in their investment and this investment gets pooled with other investors and gets invested in a portfolio of stocks, also the stocks are managed professionally

What is a hedge fund?

a hedge fund is the same as a mutual fund except that is it for wealthy people and there are less regulations, so they can do riskier things and so gain more money

What is a pension fund and why do people use it?

a pension fund is a fund that invest the money that people save for their retirement, they invest it professionally and also they can choose a wide range of securities. the profits they make aren't taxed until they withdraw the money

What is the task of insurance companies?

they give out insurances to people who than receive policies, with the money they got they can invest.

What is the difference between commercial banks and investment banks?

- commercial banks just accept deposits and with that money they invest.
- investment banks try and invest in for example primary market and sell it to investors

How could you explain that financial markets and intermediaries transport cash across time?

when someone lends money to the bank for interest he is actually transporting his money forward in time, when he borrows money he is transporting it back

How do financial markets and intermediaries reduce and reallocate risk?

ex. when you buy a policy of houseowner you greatly reduce the risk of loss from fire, theft or accident.

How can financial markets and intermediaries generate liquidity?

if you deposit 5000$ on the bank and the bank lends out your money to someone who borrows it you can still ask your money back the same day because the back also has a lot of other depositors who also deposited 5000$ in the bank

Why is the payment mechanism of financial markets and intermediaries so important?

it would be almost impossible for a  belgian company who needs 10 jets from america to pay them in cash, by using payment mechanism we can transfer money fast and safe around the world

What are commodity prices used for?

commodity prices is information given by financial markets, so if someone has to buy gold for the next month he can check the future price of this good.

Why are the interest rates on existing bonds a good information for financial managers?

if a company wants to issue bonds they can check how much interest they should give corresponding to the credit rating they got.

How can we determine the company value that is traded in the stock market?

by multiplying the number of shares with the stock price of a share.

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