Within the general field of finance, there are three areas of study—financial institutions and markets, investments, and financial management. Financial institutions collect funds from savers and lend them to, or invest them in, businesses or people that need cash. Examples of financial institutions are commercial banks, investment banks, insurance companies, and mutual funds. Financial institutions operate as part of the financial system. The financial system is the environment of finance.
It includes the laws and regulations that affect financial transactions. The financial system encompasses the Federal Reserve System, which controls the supply of money in the U.S. economy. It also consists of the mechanisms that have been constructed to facilitate the fl ow of money and financial securities among countries. Financial markets represent ways for bringing those who have money to invest together with those who need funds. Financial markets, which include markets for mortgages, securities, and currencies, are necessary for a financial system to operate efficiently.
We can examine the financial system, and the role of financial institutions and financial markets in it. Securities markets play an important role in helping businesses and governments raise new funds. Securities markets also facilitate the transfer of securities between investors. A securities market can be a central location for the trading of financial claims, such as the New York Stock Exchange. It may also take the form of a communications network, as with the over-the-counter market, which is another means by which stocks and bonds can be traded.