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January 24, 2017

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Financial Literacy | Who Are the Players? (Part1 | Chapter4)

February 27, 2017

PART 1                      FINANCE, the BIG PICTURE





Now, let’s find out who the players are in the financial market.


Surprisingly, whether you realize it or not, you are already one of the players! General public like us are called Households. Households save their earnings, invest in various financial products, and borrow money to purchase goods and services.


And then there are Corporations. They participate in the financial market to source their funds. By issuing stocks and bonds, corporations borrow or raise money from the market for their projects such as building factories, developing new products and services, or expanding their businesses. Also they trade different currency pairs when they import and export, and pay salaries to their employees.


Governments are also deeply involved in the market. They collect taxes from both corporations and households, issue government bonds to fund their operations, and regulate the financial markets so that they soundly perform.


Lastly, offshore investors or foreign investors are another participant in the financial market.


As you can see, various players intermingle to create the financial market that we know today. Due to the diverse needs of each market participant, various financial services are provided by financial institutions to support the operations of the players.


Now, let’s find out what kind of financial institutions provide the necessary services in the market. These financial institutions can be categorized into 5 parts.


First of all, there are depository institutions. They gather deposits from households, corporations and governments, and lend those deposits to whom need to raise funds for their activities as a form of loans or other investments. Under this category, commercial banks, thrift institutions and credit unions all fit in. Furthermore, these depository institutions sell various financial products to investors.


Then, there are Contractual Savings Institutions. In familiar terms, the insurance companies. As we know, there are various types of insurance companies. For example, there are Life Insurance Companies, Casualty Insurance Companies and Pension Services. These contractual savings institutions collect fees through long-term contractual arrangements, invest funds into diverse financial products, and pay back to the contract holders if the conditional events are met.


What else? Oh, yes, various Funds. As everyone does not have abilities to make sound investment decisions, financial professionals manage the funds on behalf of the clients and charge fees. Good examples that are commonly known are mutual funds and money market funds, but there are many more offered in the market.


Then, there are Securities Firms. Investment banks and brokerage firms fit under this category. These firms function as intermediaries to provide access to the financial markets and charge commissions for their services.  


Lastly, there are Other Financial Institutions. Mortgage banking firms, Consumer Loan companies and Federal Agencies are under this category.  


All the players that are mentioned consistently interact with each other and play their own roles to form the financial markets that we live in.


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