Monetary Policy Financial Institutions and the Economy Essay

Monetary Policy Financial Institutions and the Economy - Essay Example These instruments are called Initial Public Offerings (IPO). The secondary market trades existing financial instruments through an exchange. Usually, these securities, investment instruments, have a financial history on which to be evaluated before an exchange accepts the securities for sale. Financial markets are further divided into money markets and capital markets. Money markets deal in securities with a maturity date within one year. Capital markets mature in longer time frames. Bonds are debts with a maturity date, the investor loaned the business money. A stock has no maturity date; the investor owns a portion of the business. Financial institutions move money from those with excess to those with shortage through financial instruments. Supply, investors, and demand, entrepreneurs, dictate the terms and conditions of the trades facilitated by the financial institution. Commercial banks, savings banks, formerly savings and loans, thrift institutions, securities traders and inves tment bankers, finance companies, mutual funds, insurance companies and pension funds all serve as financial institutions, but with differing regulations. The History and Current Role of the Federal Reserve System. Mayer (2001) defines a central bank as a bank of issue, meaning it creates currency to represent wealth. Many American patriots like Tom Payne and Tom Jefferson thought only state-chartered private banks should issue bank notes because governments that can pay bills by printing money generally did so.