13.1 Financial Institutions in the US Economy

13.1 a. Financial Markets

The financial market is a broad term describing any marketplace where trading of securities including equities, bonds, currencies and derivatives occurs. ^[1]

A bond is a fixed income investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. ^[2]

The stock market refers to the collection of markets and exchanges where the issuing and trading of equities (stocks of publicly held companies), bonds and other sorts of securities takes place, either through formal exchanges or over-the-counter markets. ^[3]

Example: Bonds and stocks are examples of funds that borrowers directly receive from savers in a financial market.

^{Financial Markets [4]}

13.1 b. Financial Intermediaries

A financial intermediary is an entity that acts as the middleman between two parties in a financial transaction. ^[7]

As financial intermediaries, banks stand between depositors who supply capital and borrowers who demand capital. ^[5]

A mutual fund is an investment vehicle made up of a pool of moneys collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets. ^[6]

Example: commercial banks, investment banks, mutual funds and pension funds

^{Financial Intermediaries [8]}