Question

For question 3 correctly identify the financial institution based on each description giving the following table. Answer choices have also been provided.

3. Financial institutions Aa Aa Several market participants interact in developed markets to organize the exchange of funds from buyers to sellers. Such institutions as investment banks, commercial banks, financial services corporations, credit unions, pension funds, life insurance companies, mutual funds, exchange traded funds, hedge funds, and private equity companies play a key role in facilitating these transfers. Identify the financial institution based on each description given in the following table: Description Financial Institution They underwrite, distribute, and design investment securities for corporations to help them raise capital. They are established by an employer to facilitate and organize employee retirement funds. They are asset pools that invest in securities that have a potential to give stable returns. These are organizations that invest in equity capital that is not| traded in public exchanges.

Answer 1

Financial Market is place where securities are traded and it is run by its participants such as Investment Banks, clearing houses, financial corporations, mutual funds institutions, life insurance companies, credit rating agencies, exchange traded funds, public and private companies etc.

We briefly discuss some market participants and financial institutions in order to answer questions.

• Investment Banks

Investment Banks are specialized in large financial transactions and act as underwriter and intermediary between security issuer and investor. They help their clients on financial matters such as security issuer to identify initial public offer price.

• Commercial Banks

Commercial Banks are Banks in which people open account to deposit money or to make fixed term deposit and withdraw money whenever required. Commercial Banks helps transfer money from one party to another party.

• Financial Service Corporations

Financial Service corporations provide services to its clients such as investment advisory, Loan facility, Assets Management , Risk Management etc.

• Credit Unions

Credit Unions are not profit-making organization who help its member by providing low interest rate credit or loan.

• Pension Funds

It is an investment scheme by employer to provide its employee retirement benefits. It is normally invested to Risk-free or low-risk assets which have stable growth and return.

• Life Insurance Companies

These companies provide insurance facility to their clients in return of premiums and to cover their risk they invest in financial market for returns.

• Hedge Funds

It also professionally managed fund but pools money from accredited or High net worth individuals’ investor to buy risky assets which can provide higher return.

• Private equity Companies

These companies are not listed on Stock Exchange and thus not its equity shares are not public traded. They make private placement for their equities.

• Exchange traded Funds

It is a security which is traded on exchange and its price depends upon some stock index, commodity, industry index or group of securities.

Thus, The correct option of financial institutions for provided description is -

1. Investment Banks

They underwrite, distribute and design investment securities for corporations to help them raise capital.

2. Pension Funds

They are established by an employer to facilitate and organize employee retirement funds. They are asset pool that invest in securities that have a potential to give stable returns.

3. Private equity companies

These are organization that invest in equity capital that is not traded in public exchanges.