Forex or foreign exchange is the financial trading system that cultivates the international currency market.
June 27, 2009 at 9:08 pm · Filed under forex trading and tagged: corporate bonds and stocks, financial intermediaries, financial markets, government retirement funds, investment company, redeemable shares
Financial intermediaries, including depository institutions (commercial banks, savings banks, credit unions) and insurers (life, health, property and casualty), can be grouped by the composition of their balance sheets (nature of their assets and liabilities and the asset transformations they undertake) or their ownership structure, the origin of their corporate charters, and/or the identity of their regulators.
Like financial markets, financial intermediaries are highly specialized. Sometimes called the indirect method of finance, intermediaries, like markets, link investors/lenders/savers to borrowers/entrepreneurs/spenders but do so in an ingenious way, by transforming assets.
Financial intermediaries are sometimes categorized according to the type of asset transformations they undertake.
Due to deregulation, though, the lines between different types of depository institutions have blurred in recent years.
Insurance companies are also divided between mutual and joint-stock corporations. They issue contracts or policies that mature or come due should some contingency occur, which is a mechanism for spreading and sharing risks.
The third major type of intermediary is the investment company, a category that includes pension and government retirement funds, which transform corporate bonds and stocks into annuities, and mutual funds and money market mutual funds, which transform diverse portfolios of capital and money market instruments, respectively, into non-negotiable but easily redeemable “shares.”
Wright, Robert E., , and Vincenzo Quadrini. Money and Banking. 2009 . Flat World Knowledge. 27 Jun, 2009. .
June 27, 2009 at 8:44 pm · Filed under forex trading and tagged: capital market instruments, financial instruments, financial market, primary markets, secondary markets, securities
Financial markets come in a variety of flavors to accommodate the wide array of financial instruments or securities that have been found beneficial to both borrowers and lenders over the years.
Primary markets are where newly created (issued) instruments are sold for the first time.
Most securities are negotiable. In other words, they can be sold to other investors at will in what are called secondary markets.
Financial markets can be categorized or grouped by issuance (primary versus secondary markets), type of instrument (stock, bond, derivative), or market organization (exchange or OTC).
Most capital market instruments, including mortgages (loans on real estate collateral), corporate bonds, government bonds, and commercial and consumer loans, have fixed maturities ranging from a year to several hundred years, though most capital market instruments issued today have maturities of thirty years or less.
Financial instruments can be grouped by time to maturity (money versus capital) or type of obligation (stock, bond, derivative).
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June 27, 2009 at 8:34 pm · Filed under Uncategorized and tagged: adverse selection, asymmetric information, financial system, financial systems, function of financial system, moral hazard
Asymmetric information occurs when one party knows more about an economic transaction or asset than the other party does.
Adverse selection occurs before a transaction takes place. If unmitigated, lenders and insurers will attract the worst risks.
Moral hazard occurs after a transaction takes place. If unmitigated, borrowers and the insured will take advantage of lenders and insurers.
Financial systems help to reduce the problems associated with both adverse selection and moral hazard.
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June 27, 2009 at 8:26 pm · Filed under forex trading and tagged: brilliant financiers, capital and shares risks, financial system, financiers, good or evil, intertemporal trade
Financiers are not innately good or evil but rather, like other people, can be either, or can even be both simultaneously.
While some financiers are brilliant, they are not infallible, and fancy math does not reality make.
The financial system is a dense network of interrelated markets and intermediaries that allocates capital and shares risks by linking savers to spenders, investors to entrepreneurs, lenders to borrowers, and the risk-averse to risk-takers.
It also increases gains from trade by providing payment services and facilitating intertemporal trade.
A financial system is necessary because few businesses can rely on internal finance alone.
Specialized financial firms that have achieved minimum efficient scale are better at connecting investors to entrepreneurs than non-financial individuals and companies.
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June 27, 2009 at 12:05 pm · Filed under forex trading and tagged: derivatives, financial instruments, interest, principal, stocks, yield curves
Derivatives refer not to calculus (though calculus helps to calculate their value) but to financial instruments for trading risks. Interest is not necessarily interesting. Stocks are not alive nor are they holding places for criminals. Zeroes can be quite valuable. CDs don’t contain music. Yield curves are sometimes straight lines. Principal is a sum of money or an owner, not the administrative head of a high school.
In finance, unlike in retail or publishing, returns are a good thing. Military-style acronyms and jargon also abound: 4X, A/I, Basel II, B.I.G., CAMELS, CRA, DIDMCA, FIRREA, GDP, IMF, LIBOR, m, NASDAQ, NCD, NOW, OTS, r, SOX, TIPS, TRAPS.
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June 27, 2009 at 11:55 am · Filed under Uncategorized and tagged: business, finance, interest rates, money and banking, prices of bonds
People who understand the principles of money and banking are more likely to lead happy, successful, fulfilling lives than those who remain ignorant about them.
Here are simple crucial facts about money:
When the supply of money increases faster than the demand for it, prices rise and inflation ensues.
When inflation increases, so too do nominal interest rates. And when interest rates rise, the prices of bonds (and many other types of assets that pay fixed sums) fall.
You need to understand the basics of money, banking, and finance to succeed in your business.
June 27, 2009 at 11:49 am · Filed under Uncategorized and tagged: currency, exchange rate, national currencies, units of account
Foreign exchange is the trading of different national currencies or units of account.
It is important because the exchange rate, the price of one currency in terms of another, is a major determinant of a nation’s economic health and hence the well-being of all the people residing in it.
