1. Overview of Market Participants
102SIS71
Bae Eun Young 1

2. The Role of Financial markets:
Review
The Role of Financial markets:
1. The interaction of buyers & sellers determine the price of the traded assets
--price discovery process
2. Financial markets provide a mechanism for an investor to sell a financial asset.
3. Financial markets reduces the search & information cost

3. The 9 participants in financial markets:
Household
Governments
Nonfinancial corporations
Depository institutions
Insurance companies’
Asset management firms
Investment banks
Nonprofit organization
Foreign investor

4. Governments
The U.S. federal government raise funds by issuance of securities
GSE(government-sponsored enterprise): a major participant in the financial markets

5. Nonfinancial corporation
Non financial corporation issue securities.
Issue both common stock & debt obligations
Corporation with excess cash to invest participate in financial markets by investing on a short term basis

6. Asset/Liability Management
Depository institutions
Commercial banks
Savings and loan associations
Savings bank
Credit unions
Object: to earn positive spread between the assets it invests in & the costs of its funds
Asset/Liability Management
Financial institutions buy money & sell money seeking to realize profit.

7. Insurance Companies Life insurance company
Property & casualty insurance company
Function: sell protection aganist the occurrence of future events
& receive an insurance premium
*Insurance company can invest proceeds

8. Asset Management Firms
Manage funds of individuals, businesses, and state & local government
Their compensation: fees linked to amount of assets & the performance of the portfolio managed

9. Investment Banks
Investment banking firms act as brokers or dealers in the buying & selling of securities
Investment banking firm can be a subsidiary of a commercial bank or an insurance company

10. Non profit organization
Nonprofit organizations are not motivated by profit but
financially supporting and actively engaging in activities that will benefit some public or private interests
Qualified foundations are exempt from taxation

11. Foreign Investors
Individuals, nonfinancial business & financial entities that are not domiciled in the Untied States
Foreign central governments and supranational

12. The business of financial institutions
Financial institutions provide services:
transform financial assets into a different, and more widely preferable, type of asset, which becomes their liability.

13. What a financial intermediary is
Financial intermediaries include:
depository institution, insurance companies, pension funds, investment companies
Funds by issuing financial claims & investing those funds
Assets can be in the form of loans and/or securities –direct investment
Transforming financial assets : diversification

14. Four functions of financial intermediaries
A. Maturity intermediation
by issuing its own financial claims
B. Risk reduction via Diversification-
attaining cost effective diversification in order to reduce risk by purchasing the financial assets: important benefit for financial markets

15. Maturity Intermediation A longer term asset A shorter term one :
Commercial bank
A longer term asset A shorter term one :
by giving the borrower a loan for the length of time
by giving the investor/depositor a financial asset for the desired investment horizon

16. c. Reducing the costs of contracting and information processing
c. Reducing the costs of contracting and information processing : costs effectively(economics of scale)
A financial market reduces the research & information costs of transaction

17. d. A payments mechanism
Payments using checks, credit cards, debit cards & electronic transfers of funds
The ability to make payments without the use of cash is critical
Depository situations transform assets

18. The typical justification for Governmental Regulation of markets
. How the government regulates financial markets
Disclosure regulation
Financial activity regulations
Regulation of financial institutions
Regulations of foreign participants

19. Thanks