Clearinghouses arrange for final settlement of trades. Summary By facilitating transactions among buyers and sellers, financial intermediaries provide services essential to a well-functioning financial system. They facilitate transactions the following ways:
The process of buying assets, placing them in a pool, and then selling securities that represent ownership of the pool is called securitisation. The corporation or trust is called a special purpose vehicle (SPV) or, alternatively, a special purpose entity (SPE). Depository Institutions and Other Financial Corporations Depository institutions include commercial banks, savings and loan…
Financial intermediaries help entities achieve their financial goals. These intermediaries include commercial, mortgage, and investment banks; credit unions, credit card companies, and various other finance corporations; brokers and exchanges; dealers and arbitrageurs; clearinghouses and depositories; mutual funds and hedge funds; and insurance companies. The services and products that financial intermediaries provide allow their clients to…
A contract is an agreement among traders to do something in the future. Contracts include forward, futures, swap, option, and insurance contracts. The values of most contracts depend on the value of an underlying asset. The underlying asset may be a commodity, a security, an index representing the values of other instruments, a currency pair or…
Currencies are monies issued by national monetary authorities. Currencies trade in foreign exchange markets. In spot currency transactions, one currency is immediately or almost immediately exchanged for another. The rate of exchange is called the spot exchange rate. Retail currency trades most commonly take place through commercial banks when their customers exchange currencies at a…
People, companies, and governments sell securities to raise money. Securities include bonds, notes, commercial paper, mortgages, common stocks, preferred stocks, warrants, mutual fund shares, unit trusts, and depository receipts. These can be classified broadly as fixed-income instruments, equities, and shares in pooled investment vehicles. Fixed Income Fixed-income instruments contractually include predetermined payment schedules that usually…
People, companies, and governments use many different assets and contracts to further their financial goals and to manage their risks. The most common assets include financial assets (such as bank deposits, certificates of deposit, loans, mortgages, corporate and government bonds and notes, common and preferred stocks, real estate investment trusts, master limited partnership interests, pooled…
The financial system includes markets and various financial intermediaries that help transfer financial assets, real assets, and financial risks in various forms from one entity to another, from one place to another, and from one point in time to another. These transfers take place whenever someone exchanges one asset or financial contract for another. The…
