The Role of Financial Institutions and Markets

2005 WordsJan 3, 20149 Pages
The Role of Financial Institutions in Financial Markets and Financial Crises 1. The Financial Market and The Recent Financial Crisis 1 2. Financial Institutions 3 2.1 Types of Financial Institutions 3 2.2 The Role of Financial Institutions in the Financial Markets 4 2.3 The Role of Financial Institutions in the Financial Crisis 6 3. Conclusion 7 1. Financial Market and Financial Crisis Technology, globalization, competition, and deregulation all have contributed to the revolution of worldwide financial markets and the creation of an efficient, internationally linked market. However, these developments have created potential problems (Brigham 1995: 111). As the…show more content…
Due to lack of trust between the banks, the interbank credit lending decreased dramatically, so that the liquidity crisis turned to a bank crisis. Henceforth, this crisis covered the goods market, in result unemployment rates increased, international trade decreased and the recession settled. Due to the dimensions the economic slump took it is considered as the new world economic crisis (bpb 2013). 2. Financial Institutions Financial Institutions are firms that provide access to the financial markets, both to savers, who wish to purchase financial instruments directly, and to borrowers, who want to issue them (Cecchetti/ Schoenholtz 2010). In fact, financial institutions - also referred to as financial intermediaries - are like most other businesses: the primary business is to generate profit by minimizing the costs and maximizing the revenues. Additionally, financial intermediaries design and sell financial products and services in accordance to customers demand at a reasonable profit level (Pilbeam 2010: 46). A financial intermediary interacts with savers or lenders and borrowers simultaneously; thereby it produces a set of services, which facilitate the transformation of its liabilities into assets such as loans, which is referred to as intermediation (Madura 2012: 12). 2.1 Types of Financial Institutions Generally, there are three classifications of financial institutions: depository
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