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Market Participation by various entities

Write a paper, describing how businesses, government units, institutional investors, and individuals participate in money, stock, and bond markets, and equity securities. Describe the roles, functions, and differences between the markets. Include a brief summary of how each market works.


Objectives for the Week

? Identify reasons for growth of U.S. banking operations overseas.
? Explain how the interdependence among international economies and financial markets contribute to global financial stability.
? Evaluate the opportunities and challenges faced by financial institutions within the international financial system.

What You Already Know

In Week Four, students were introduced to money markets, bond markets, and equity securities. Concepts regarding the many risks on these transactions, such as low default risks and high marketability were discussed. Students gained an in-depth perspective on how the different participants, such as private businesses or individuals, use the different markets for financial transactions. The role of bond markets and equity securities was also presented. These concepts, combined with the previous weeks', have provided students with a solid foundational understanding of domestic financial institutions and markets, allowing students to move into this final week of global financial applications.

This Week in Context

During the final week of this course, students will be combining the prior weeks' concepts and integrating concepts of international finance to produce a more complete understanding of financial institutions and financial markets as it applies to global perspectives. Students will gain knowledge regarding the specific risks unique to international trade, such as foreign legal systems and incomplete or unreliable credit information. Additionally, students will learn the reasons behind the sudden growth in overseas banking during the 1960s and how government regulations affect that growth. Students will also revisit the role the Federal Reserve board plays in global finance. These concepts are important because financial managers must have an understanding of the benefits and risks of international finance to make responsible and competent financial decisions.

Assignment Overview

In the individual assignment due this week, students choose a topic and explore that topic's relationship to overseas banking growth, interdependence among economies and financial markets, and the influence interdependence has on global financial stability. Additionally, students are able to participate in activities and discussions that deepen their understanding of the interconnectedness of financial institutions and financial markets.

The Learning Team assignment due this week allows the teams to demonstrate understanding of money, bond, stock, and equity security markets and how individuals, government units, and businesses interact and participate in those markets. Teams display those concepts in a visual form using Power Point®.

Solution Preview

Market Participation Paper:

Money market is a section of financial market that specializes with short-term borrowing and lending of securities with a high liquidity. These securities in money markets include treasury bills, federal funds, certificates of deposits (CD's), commercial papers, repurchase of agreements, banker's acceptance and short term mortgages. The major role of the money markets in the financial market is that it provides the markets with liquidity assets across international borders. (Levinson, 2010).

Bond markets is a section of the financial market that deals with the buying and selling of debt securities such as bank notes, bonds and debentures in the secondary market. The bond markets also allow its participants to issue new securities in the primary markets through the sale of new stock or bonds. The major significance of the bond markets in the financial market is that it provides its participants with a means of funding long term expenses within the business operations. The bond market also facilitates the transfer of capital from the issuers of the securities to fund for the government projects in the economy (Faerber, 2001).

Stock markets in an economy involves the buying and selling of company shares which is also known as stock to the investor or the public buyers at a set price. The stock markets also deal with the buying and selling of derivatives where the parties involved in the derivative contract specify the terms and conditions of the sale contract. The main objective of the derivatives in the stock markets is to hedge the risks involved with fluctuation of currencies across international borders (Teweles & Bradley, 1998).

Businesses, government units, institutional investors, and individuals participate in money, stock, and bond markets, and equity securities in a various ways. Businesses issues shares to the public through the stock markets. Here they sell shares at a price that is stated to the public and then the investor and other individual buyers in the economy participate in these transactions through buying the shares. The government also participates in these markets through dictating the interest rates that is imposed on the securities in the financial markets. Increase of prices in the bond markets and the money markets leads to a subsequent decrease of prices of stock markets. This is because when government ...

Solution Summary

The solution discusses market participation by various entities including the roles, functions and differences.