What is the relation between a financial institution and the financial market?
Finance is the management of assets and liabilities over space and time. It involves taking risks and investing with the hope of making profits. Finance includes activities such as banking, lending loans, and investment.
Answer and Explanation:
Financial institution. It is a firm involved in banking services and monetary transactions. These services are loans, deposits, and currency exchange.
Financial market. It is a marketplace for trading securities such as bonds, stocks, and market shares.
The following are the connections between a financial institution and the financial market:
- Financial institutions act as intermediaries for the financial markets. The institutions allow investors to access the markets easily when buying assets.
- The price of assets in a financial market is affected by the ongoing activities in financial institutions. Customers tend to trust the financial institution to do the trading for them.
- A direct connection between a financial institution and the company selling bonds or shares affects the financial market because customers consider the creditworthiness of such a company. A financial institution determines the price that customers are willing to pay to own assets.
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Learn more about this topic:
from Corporate Finance: Help & ReviewChapter 8 / Lesson 7