Financial Markets and the Risks They Run :: Financial Markets Institutions Finances Essays

Financial Markets and the Risks They RunOutline the differences between a broker and a dealer (or food marketmaker) in financial markets, including discussions of how theyare remunerated and what risks they run.A financial market consists of diverse financial assets traded between vendees and sellers. In addition to enabling commute of previouslyissued financial assets, financial markets make possible the borrowingand lending by facilitating the sale by pertly issued financial assets.Examples of financial markets include the unsanded York Stock Exchange(which is involved in the resale of previously issued stock shares),the U.S. government bond market (which is involved in the resale ofpreviously issued bonds), and the U.S. Treasury bills auction (salesof newly issued T-bills). A financial institution is an organizationwhose primary source of profits is through financial assettransactions. Examples of such financial institutions include discountbrokers, banks, insurance companies, and complex multi-functionfinancial institutions such as Merrill Lynch.Financial institutions participate in financial markets by creatingand/or exchange of financial assets. In the financial market there arefour institutions that carry out in this type of trade. One of whichis a broker which is a commissioned agent of a buyer/seller whofacilitates trade by locating a seller/buyer to complete the desiredtransaction. A broker does not take a baffle in the assets he or shetrades there is no keep oning of inventories in these assets onbehalf of the broker. The commissions they charge to the users oftheir services determine the profits of brokers. Examples of brokersinclude real estate brokers and stockbrokers. Dealers, care brokers, facilitate trade by matching buyers withsellers of assets they do not engage in asset transformation. Unlikebrokers, however, a dealer can and does take positions (i.e.,maintain inventories) in the assets he or she trades that permit thede aler to sell out of inventory rather than always having to locatesellers to match every offer to buy. Also, foreign brokers, dealers donot receive sales commissions.