Week 1

Week 1 - Assignment: Evaluate Financial Markets, Securities, and Institutions Along with Associated Risks

Instructions

In a paper, provide an evaluation of the following points:

1. Financial engineering has been disparaged as nothing more than paper shuffling. Critics argue that resources used for rearranging wealth (that is, bundling and unbundling financial assets) might be better spent on creating wealth (that is, creating real assets). Evaluate this criticism. Are any benefits realized by creating an array of derivative securities from various primary securities?

2. Why would you expect securitization to take place only in highly developed capital markets?

3. What is the relationship between securitization and the role of financial intermediaries in the economy? What happens to financial intermediaries as securitization progresses?

Support your paper with minimum of five (5) resources. In addition to these specified resources, other appropriate scholarly resources, including older articles, may be included.

Length: 5-7 pages not including title and reference pages

Your paper should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards.

Features of Financial Systems

Some basic features of the financial system include: financial markets, financial securities, and financial institutions. Financial markets (security markets) are usually categorized as: (a) primary markets whereby securities are originally issued, and (b) secondary markets whereby seasoned securities are traded among investors.

Financial securities (debt or equity) are most commonly grouped into money market (i.e., by large institutions and government) and capital market (stock and bond market) securities. The money market securities are debt securities where the re-payment is expected to be within one year. Capital market securities have a maturity beyond one year and are commonly issued to fund long term asset purchases.

The financial institutions within the financial system help to transfer money and risk among investors and institutions. Commercial banks are an example and the best known among the financial institutions. Commercial banks take in the deposits of individual savers or investors as well as business organizations and pool the funds to create business, consumer, and mortgage loans.

Review the resources listed in the Books and Resources area below to prepare for this week's assignments

Resources:

Edu, I. (2012, September 10). Financial markets [Video file].

https://www.youtube.com/watch?time_continue=14&v=P_bqDgkZmuY

Metrick, A. (2012, October 17). The financial system [Video file].

https://www.youtube.com/watch?v=JlIizkvJCoE

Bodie, Z., Kane, A., & Marcus, A. J. (2013). Investments New York, NY McGraw-Hill-Irwin.