Money, Finance and Financial Institutions

M arkets are interrelated, and a problem in one market can have its source in a different market. Economists conventionally lump together or aggregate the vast number of markets in a modern economy into only four: markets for goods and services, financial assets, money balances, and resources. This group of reading begins our exploration of aggregated markets by looking at financial markets.

Finance is often defined simply as the management of money or “ funds ” management. Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created for transacting and trading assets, liabilities, and risks. Networks of financial businesses exist to create, negotiate, market, and trade in evermore-complex financial products and services for their own as well as their clients’ accounts.

The financial system consists of public and private interests and the markets that serve them. It provides capital from individual and institutional investors who transfer money directly and through intermediaries (e.g. banks, insurance companies, brokerage and fund management firms) to other individuals, firms, and governments that acquire resources and transact business. With the expectation of reaping profits, investors fund credit in the forms of (1) debt capital (e.g. corporate and government notes and bonds, mortgage securities and other credit instruments), (2) equity capital, and (3) the derivative products of a wide variety of capital investments including debt and equity securities, property, commodities, and insurance products.

Intermediaries are also referred to as financial institutions. They may be defined as firms that provide financial services and advice to their clients. The financial institutions are generally regulated by the financial laws of the government authority.
Various types of financial institutions are as follows:

The various financial institutions generally act as an intermediary between the capital market and debt market. But the services provided by a particular institution depends on its type. The financial institutions are also responsible to transfer funds from investors to the companies. Typically, these are the key entities that control the flow of money in the economy. The most common financial institutions are banks. A bank is an organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks.

Sources: http://chestofbooks.com/finance/banking/Money-And-Banking/2-The-Nature-And-Classification-Of-Deposits.html,

http://ingrimayne.com/econ/Financial/Overview8ma.html