Major Participants in Financial Markets

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Financial Markets are important because they provide the funds business’s need to grow.


The 3 main ways a business can get funds from a source outside the business are:

  • Financial Institutions (such as banks): accept savings from people and institutions with excess funds and transfer them to people and business’s who want to borrow additional funds.
  • Financial Markets: places where the people and institutions with surplus funds can make transactions directly with the businesses that want loans and investments.
    • Money Market: makes transactions in short-term debt instruments, or marketable securities.
    • Capital/Securities Market: trades long term securities such as bonds and shares. All securities are first issued in the primary market, later these securities may be bought and sold again in the secondary market.
  • Private Placement: a direct arrangement is made between a person or institution wanting to sell a security and another institution, wanting to invest funds.


Contents

Major Participants In Financial Markets

Insurance Companies

  • Issue contracts to provide a future payment if a certain event happens
  • Use the fees from these contracts to invest in equities, debt and property


Finance Companies

(short to medium term debt capital)
  • Get funds by issuing debentures and borrowing from the general public
  • Provide short-to-medium-term funds to business, particularly leasing finance


Banks

  • Are the largest providers of funds to business
  • Get most of their funds from deposits
  • Provide a wide range of debt securities to business


Merchant Banks

  • Get funds by short-term borrowing
  • Lend mainly to corporations in such things as foreign currency and commercial bills


Companies

  • Often have surplus funds from operations
  • Invest funds on money market, commercial bills and sometimes buy shares in businesses


Superannuation/Mutual Funds

  • Get funds from the savings of people preparing for retirement
  • Invest funds on money market, commercial bills and sometimes buy shares in businesses


Government

(Reserve Bank of Australia)
  • Acts for the government to ensure gaps in the supply of funds are filled
  • Works through the authorised dealers



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