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ASSIGNMENT INSTRUCTIONS
To Write a summary of the article(s), answering the following questions:
1. Why are financial markets essential for a healthy economy and economic growth?
2. What are financial institutions?
3. Describe each and give an example of who may use them:
a. Investment banks
b. Commercial banks
c. Financial services corporations
d. Pension funds
e. Mutual funds
HOW TO WORK ON THIS ASSIGNMENT (EXAMPLE DRAFT/ESSAY)
Because they facilitate the flow of funds between savers and borrowers, financial markets are critical for a healthy economy and economic growth. Individuals, corporations, and governments with excess funds to invest are considered savers, whereas borrowers require funds to invest in their business or other ventures. Financial markets, such as the stock market and bond market, allow savers to invest their money and earn a return, while lending institutions provide borrowers with the funds they need to expand their businesses or make other investments. As a result, economic growth and job creation are boosted.
Financial institutions are organizations that facilitate the flow of funds in financial markets between savers and borrowers. They offer a variety of financial services, including accepting deposits, making loans, and investing in financial markets. Banks, insurance companies, investment banks, and mutual funds are examples of financial institutions.
a. Investment banks are financial institutions that underwrite and sell securities to assist companies and governments in raising capital. They also offer mergers and acquisitions and other financial transaction advisory services. Goldman Sachs and Morgan Stanley are two examples of investment banks.
b. Commercial banks are financial institutions that accept customer deposits and lend to individuals and businesses. Other financial services they provide include credit cards, mortgages, and investment products. JPMorgan Chase and Bank of America are two examples of commercial banks.
c. Financial services corporations provide a variety of financial services such as insurance, investment management, and wealth management. American Express and Charles Schwab are two examples of financial services corporations.
d. Pension funds are funds that provide employees with retirement benefits. Employers or labor unions typically sponsor them, and they invest in a variety of financial instruments to generate returns that can be used to pay retirement benefits. The California Public Employees’ Retirement System (CalPERS) and the Teacher Retirement System of Texas are two examples of pension funds (TRS).
e. Mutual funds are investment vehicles that pool money from multiple investors in order to invest in a diverse portfolio of securities like stocks and bonds. Professional fund managers manage them and make investment decisions on behalf of the investors. Vanguard and Fidelity are two mutual fund companies.
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