The Role of Financial Institutions in Financial Markets Essay

771 WordsMay 6, 20144 Pages
The Role of Financial Institutions in Financial Markets October 21, 2013 Professor Todd Kucker Financial Institutions The U.S. financial system is composed of financial markets and various institutions. According to Investopedia, A financial market is any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. There are several types of markets that make up the broad financial market, including capital markets, money markets, primary and secondary markets, and derivatives markets. There are various financial institutions that function within these markets. A financial institution is an institution which collects funds from the public and places them in financial assets. (1) Financial Institutions are a very important source of financing. This paper will focus on three types of financial institutions: commercial banks, credit unions, and mutual funds. Commercial Banks A commercial bank is a financial institution “that provides services, such as accepting deposits, giving loans, mortgage lending, and basic investment products, like cd’s and savings accounts.” (2) Commercial banks also provide checking services and many issue credit cards. They provide safekeeping of valuables for their customers by providing the rental of safety deposit boxes. Of all of the aforementioned services, the primary function of a commercial bank is to make short-term loans and to accept deposits. A commercial bank is considered a depository institution. One major benefit for consumers of commercial banks is that many deposits made into the institution are covered by the Federal Deposit Insurance Corporation, or FDIC, usually in amounts of up to $100,000. This insurance gives consumers less risk that with other types of financial institutions. The commercial bank is a

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