The Function Of Financial Institutions

Financial institutions are cornerstones in the financial market. They provide five fundamental services that are needed to create efficiency within the market. The services are denomination divisibility which means producing financial claims of varying dollar amounts, currency transformation which is buying financial claims denominated in one currency and selling financial claims denominated in another, maturity flexibility which is creating financial claims with a wide range of maturities.
Credit risk diversification which is diversifying risk more efficiently than individual lenders might be able to on their own and liquidity which is buying direct financial claims with low liquidity and issuing indirect financial claims with more liquidity. When all of these services are in full swing then the conditions for the best forex trading can take place. The money markets are a collection of markets in which commercial banks and businesses adjust their liquidity positions by borrowing or lending for shorter periods of time.
The Federal Reserve System conducts monetary policy in the money markets and the US Treasury uses the market to finance the day-to-day operations of the federal government. The most important money market security our treasury bills, negotiable certificates of deposit and commercial paper. The capital markets are where business firms obtain funding for long-term investments such as forex trading tips are where consumers finance purchases of long-term assets. Capital markets securities are long-term and typically involve more risk than money market securities. The most important capital markets securities are corporate stock, treasury bonds and residential mortgages.
financial institutions are profit maximizing businesses that earn profits by acquiring funds at interest rates lower than they earn on the assets. the nature and characteristics of the financial claims they hold expose them to a variety of risks. The major risks that financial institutions face our credit was, interest rate risk, liquidity risk, foreign exchange risk and political risk. As a trader it would be wise to learn as well.