Role of U.S. Financial System


Rachel Vishnevsky
University of Phoenix
Cindy Bayer
October 29, 2006
Managerial Finance FIN 475



The U.S. financial marketplace consists of borrowing,lending,
investing, and management of assets and liabilities. The following article
will discuss various financial markets and how the Federal Reserve is
monitoring their economic standing on a quarterly and annually basis. The
necessity of investment bankers and sources of capital available to
corporations will be addressed. Finally, raising short-term and long-term
capital will be conferred.

Financial Market consists of various sectors: households and nonprofit
organizations, nonfinancial business, state and local governments, federal
government, foreign market places, monetary authority, commercial banking,
savings institutions, credit unions, property-casualty insurance companies,
life insurance companies, private pension funds, state and local government
employee retirement funds, federal government retirement funds, money
market mutual funds, mutual funds, closed-end and exchange-traded funds,
government-sponsored enterprises, agency and GSE- backed mortgage pools,
issuers of Asset-Baked Securities,Financecompanies,realestate
investment trust, security brokers and dealers, and funding corporations.

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These various sectors are quarterly and annually reported on through the
Flow of Funds issued by the Federal Reserve and considered to be most in-
depth data available on the financial markets economic standing.

Investment Bankers role is the representative ofafinancial
organization that is in business for earning revenue for corporations.

Investment bankers’ roles consist of advising clients, dealing with bonds,
mergers, and the sale of stock. Financial analysis is the foundation of
investment bankers.

Sources of capital available to corporations fall into two categories:
equity financing, and debt financing. Equity financing is the investment of
revenue for exchange of part ownership. Debt financing is borrowing to
repay with interest. Commercial banks, commercial financecompanies,
leasing companies, and state and local government lending programs all
provide for debt financing. Sources for equity capital consist of private
investors, institutional venture- capital firms, mergers and acquisitions,
strategic investors and corporate venture capitalists, overseas investors,
and intermediaries. Business owners have a wide variety of capital sources
available to them. The sources of capital vary in cost, terms, and
collateral.

Raising short-term and long-term capital fall into three main sources:
shareholders’ equity, borrowed funds, and reserves. Three types of finance
are short, medium, and long-term. Short-term finance is generally the funds
required to run a business or the operating expense. Short-term finance is
generally more costly and must not be used for long-term projects. Short-
term finance can come from the following bank overdraft, commercial bill,
and debtor finance. Medium term finance is capital that is in 3-10 year
range and comes from the following forms: term loans, personal loans, and
leasing. Long-term finance is the purchase of various assets such as plant,
machinery, land, businesses, and building that are anticipated to recover a
profit over a given number of years.

Financial markets assist in helping borrowers find lenders. Banks and
other intermediaries use deposit money for individual who seek to borrow
and distribute in the form of mortgages and loans.

The goal set forth by most organizations is to leverage the business
cash. The more long-term the greater the financial leverage. Additional
capital is an investment and several tools are available for informed
investment decisions. The SEC (Securities and Exchange Committee) has
several rules that need to be adhered to and will address questions set
forth by organizations. It is crucial to evaluate the use of attainment of
additional capital in terms of the current business plan in place. Several
questions must be addressed in regards towards the capital: the need, the
urgency, current risks, purposes, current market standing, and overall
profitability in contrast to current risk.

The role of the U.S. Financial system is to monitor and report data as
well as offer small businesses and corporation the guidance and authority
needed. Investment bankers are the intermediaries that communicate proper
guidelines between authorities and corporation in relation to current
investments. Several sources of capital are available in the current day
marketplace therefore it is essential for outmost scrutiny and analysis
upon decision of analysis for uses of capital in thecorporation.

Regulatory agencies are becoming stricter and auditing more corporations.

Equity financing and debt financing have requirements that mustbe
carefully followed to avoid penalty. U.S. Financial System has proper
disclosure of informationneededforraisingcapitalwithinan
organization; it is the investment bankers of financial managers’ role to
seek out the information need for a capital gain on capital raised.


References
Financial Markets Center; U.S. Economy and Financial Markets. (n.d.).

Retrieved on October 28, from
http://www.fmcenter.org/site/pp.asp?c=8fLGJTOyHpE;b=224802
Investment Banking Wikipedia, Free Online Encyclopedia (n.d.). Retrieved on
October 28, from
http://en.wikipedia.org/wiki/Investment_bank#Raising_capital_in_the_cap
ital_markets
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