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Financial markets transfer resources across time and space

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Prof
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General public
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educational...
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Harvard

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documents in English
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pdf
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case study
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4 pages
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General public
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  1. Introduction
  2. Financial markets
  3. Main Functions Provided By Financial Markets
  4. Classification of financial marke
  5. Main Differences between Investment Banking and Commercial Banking Business
  6. Conclusion

Financial markets comprise a collection of formal and informal institutions whose functions stretches to facilitate movement of financial resources. Firstly, financial institutions provide mechanisms for where economic agents clear and settle their obligations. This arises when the financial system facilitates the transfer of ownership of economic resources. Secondly, it enables the pooling of financial resources where investors accumulate their contributions into a single investment fund. This enables investors to fund projects in which they cannot afford as an individual (Bailey, 2008, p. 2). Besides, conducting transfer of economic resources across time and space, financial markets provide mechanisms in which economic units manage their risk. For example, the financial system offers a variety of instruments including hedging, diversification and insurance from which economic agents' pool, price and exchange risks (Chandra, 2011, p. 25). Finally, financial intermediaries provide information useful in making decisions and allocation of resources (Liebscher, 2008, p. 160) Classification of the financial markets is attained under various perspectives including financial instruments, feature of the services, trading procedures, key market participants, as well as the origin of the markets (Darskuviene, 2010). Firstly, according to the origin the market is classified into national markets and external market. The national market comprises a domestic section where issuers of financial instruments only trade them in that country while a foreign market allow trading of securities in other countries.

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