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Financial Markets and Institutions - Essay Example
Finance & Accounting
Pages 5 (1255 words)
Financial Markets and Institutions Role of Financial Markets in Creating Wealth in US Financial investment by individuals and corporate constitutes an important part in wealth creation. Investment is done for future expenditure plans such as to buy real estate, pay for family expenses and also to pay off outstanding loans…
Another option available to an investor is the financial markets that help to channel money from an individual having surplus funds to an individual who requires the money. By participating in financial markets the investor will get the opportunity to invest in a broad range of securities ranging from stocks, bonds, and Treasury bills to modern financial instruments such as derivatives. Financial markets helps to create wealth by mobilizing personal savings of investors and arranging suitable invest opportunity. The process in turn contributes in creation of national wealth by encouraging investments and savings (Madura, 2012, pp.4-7). Overview of Securities Treasury Bills The maturity of T-bills is less than a year and is hence instrument of money market and not capital market. These instruments are very similar to zero-coupon bonds and hence do not pay interest prior to maturity. The process of issuing T-bills is through competitive bidding where they are sold to investors at discount and at maturity they are redeemed at the face value of the bond. The appreciation of bond prices in near future provides returns for investment. The maturity of treasury bills varies from 28 days to 364 days and they are sold weekly through single-price auctions. ...
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