Part Ⅰ Financial Markets
Chapter 1 Functions of Financial MarketsChapter 2 Money MarketsChapter 3 Capital MarketsChapter 4 Foreign Exchange Markets
Chapter 1Functions of Financial Markets
Significance
The word “finance” signifies capital in ary form, that is, in the form of funds lent or borrowed, normally for capital purposes, through financial markets or financial institutions. When finance goes international, it is then an international finance.
What is a financial market? It is a place where financial transactions take place. Financial markets facilitate the lending of funds from savers to those who wish to undertake investments. Those that wish to borrow to finance investment projects sell financial instruments to savers.
When an investor purchases the securities issued by ultimate borrowers (those who use the funds to invest in real assets), capital market operations for equities, bonds would fall largely into this category. When an investor chooses to invest in the obligations of financial intermediaries, which in turn lend the funds to those who invest in real assets, they are operations in money market for term deposits and loans, interbank transactions of such nature. The primary distinction between the two channels is that, in the first case, . direct financing, the investor is faced directly with the credit risk of the issuer, while in the second case, . financing through financial intermediation, a financial institution, such as a bank, interjects itself between users and providers of funds. Any analysis of the sector of money market dominated by financial intermediaries must be very much concerned with these financial institutions themselves (their policies, financial conditions and official regulatory environment) in addition to those factors governing the suppliers and users of funds.
International financial transactions include purchases and sales of foreign currency, securities, gold bullion, and lending and borrowing.
Foreign ex
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