Capital Markets: Financial Intermediaries, Participants, and Economic Development

This set of flashcards covers the fundamental vocabulary of capital markets, including the roles of various financial intermediaries, key market participants, and the mechanisms by which capital markets drive economic development.

Financial Intermediaries

Institutions that channel funds between those who save and those who need capital, transforming risk, size, and timing along the way.

Commercial & Retail Banks

Financial institutions that accept deposits, extend loans, and create liquidity through maturity transformation.

Investment Banks

Financial institutions that underwrite securities, arrange mergers and acquisitions, and connect large issuers directly to capital markets.

Insurance Companies

Companies that pool premiums to underwrite risk, investing reserves into long-term capital market assets.

Pension Funds

Funds that aggregate retirement savings and invest them for long-horizon, income-generating growth.

Mutual & Investment Funds

Entities that pool investor capital into diversified portfolios managed by professional asset managers.

Broker-Dealers

Participants who execute trades and make markets, providing the liquidity that keeps securities tradable.

Maturity Transformation

The core function of turning short-term deposits into long-term loans and investments.

Information & Screening

The process of assessing borrower quality to reduce costly information asymmetry.

Liquidity Provision

A function allowing savers to access cash quickly even when funds are invested long-term.

Issuers

Corporations and governments that raise capital by issuing stocks, bonds, or other securities.

Investors

Retail and institutional buyers, such as individuals, funds, and firms, who supply capital seeking returns.

Regulators

Bodies, such as securities commissions, that set rules, license participants, and protect market integrity.

Market Infrastructure

Exchanges, clearinghouses, and depositories that provide the venues and plumbing for trading and settlement.

Underwriters

Market participants who price and distribute new issues, bridging issuers to the investing public.

Exchanges/CCPs

Venues that host trading and settlement, providing transparency and safety to the market.

Capital Formation

The process of converting scattered household and institutional savings into usable investment funds.

Efficient Allocation

The use of prices and competition to steer capital toward the most productive uses.

The Capital Markets Growth Loop

A cumulative cycle where savings are mobilized, capital is invested, firms/infrastructure grow, jobs/income rise, and more savings are generated ($12$).