Financial Markets

The secondary mortgage market was on the up-rise when Michael Lewis accepted a job at Salomon Brother’s. The secondary mortgage market was the selling of bonds, with a promise to be paid back with mortgage loans. The lender, whomever that

Furthermore, depository institutions that do not meet the requirements for primary credit but needs a short-term loan for liquidity purposes can still use secondary credit. Higher level of administration is necessary for secondary credit due to the institution being less stable than those who are eligible for the primary credit. Thus, secondary credit is priced slightly higher than the primary credit.

The system allows for the private ownership of capital, communication through prices and coordinates economic activity through markets

Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money.

Financial markets are crucial to promoting greater economic efficiency by channeling funds from people who do not have a productive use for them to those who do. Well functioning financial markets are a key factor in producing high economic growth, and poorly performing financial markets, vice versa. Financial markets and intermediaries have the basic function of getting people together by moving funds from those who have a surplus of funds to those who have a shortage of funds.

Moving on to the next process the secondary market. The secondary market is the market for buying and selling mortgages.

If a public company is listed on the ASX, members of the public can buy and sell securities (such as shares) issued by the company on the secondary market conducted by the ASX. People wishing to buy or sell securities must do so through a broker who is a participant in the ASX.

The secondary market dictates what the value of a firm is. If there is a lot of trading going on for a certain firm’s securities then the value of the firm will go up. But if everyone sells the securities in a firm then the firm will lose a lot of money and value.

If the original mortgage holder makes the decision to sell the mortgage in the secondary market, the buyer may choose to hold the mortgage and continue to receive payments from the borrower. Another option the buyer has is to securitize the mortgage, meaning it is pooled together into a security with other mortgages, and payment streams associated with the pool are sold to investors. Fannie Mae and Freddie Mac are privately owned enterprises which receive support from the federal government and also take on some public responsibilities. These enterprises provided a liquid secondary market in home mortgages in which they purchase mortgages from those who emanate them. Other financial institutions offer mortgage-backed securities known as private-label

This accessibility of information and deregulation has encouraged foreign investments, and we can see the surge of new financial products and an increase in financial innovation in the markets today. Stocks can now be dual-listed, traded across markets in two different countries. For example, many large Canadian companies are listed both on the New York Stock Exchange as well as the Toronto Stock Exchange. There are also Brazilian-based companies listed on both the Brazilian and US stock markets. This adds greater liquidity to the companies’ shares traded, and also gives investors more options as to where they can trade.

Investors in the secondary market often purchase mortgage securities after they are issued. Large institutions make investments in mortgage securities when they are issues. Other dealers in a secondary market sometimes redistribute securities.

The National Association of Securities Dealers Automated Quotations (NASDAQ) and the New York Stock Exchange (NYSE) are two of the largest and most known stock exchanges across the globe. Both of these stock exchanges handles and mediates the trade, sale, and purchasing of different stocks, bonds, and securities. While both of these stock exchanges have their own unique methods and forms of purchasing and selling stocks, they both serve the same purpose and function, which is a marketplace for the sales of stocks.

If an investor sells shares of stock through a broker, then it would be a primary market transaction.

* Secondary market examples: Stock market (NYSE or NASDAQ), future option markets, foreign exchange markets

Institutions often trade of shares and institutional order’s can have a major impact on market volatility. In smaller markets, institutional trades can potentially destabilize the markets. Moreover, institutions also have to design and time their trading strategies carefully so that their trades have maximum possible