Introduction
It was necessary to choose several articles to initiate the analysis of financial markets and capital transfers. At the University Library, there are many academic databases; EBSCO and ProQuest were chosen because of their good reputation and several successful experiences in the past. After reading the required chapters from the textbook, several critical keywords were refined for the search process. The combination of the following terms allowed finding many articles: “financial market,” “economic growth,” “capital transfer,” “market types,” “asset,” “bank,” and “fund.” The assignment requirement was to work with current and high-quality sources. Therefore, a common recommendation to use peer-reviewed articles published within the last five years was followed. It was important to choose full-text articles from academic journals. Abstracts or paid sources older than five years were excluded. Not many article authors covered all the necessary topics for understanding how financial markets operate and define economic growth within one study. Moșteanu (2019) and Urban and Wójcik (2019) demonstrated informative findings on the development of markets in a sustainable finance sector during the era of globalization. These articles met all inclusion criteria and covered the necessary topic, explaining the choice.
Financial management is a complex practice consisting of various concepts, processes, and regulations necessary for understanding the value of money, cash flows, institutions, market prices, and risks. People need to learn the basics to make effective financial decisions and choose the right transfer methods to gain benefits and avoid challenges. The differences in financial institutions and financial markets prove a possibility of choice and diversity of capital transfer outcomes.
Financial Markets and Economic Growth
The main idea of financial markets is to unite people who need to manage their money flows. According to Titman et al. (2018), finance management plays an important role in modern society because it shows how to allocate money and the most appropriate mechanisms to organize various financial claims. However, the connection between financial markets and economic growth goes far beyond the offered definitions and explanations. Urban and Wójcik (2019) underlined the statement by the United Nations Environmental Program Financial Initiative that financial services are critical for promoting sustainable lifestyles and the integration of social and environmental issues. Such processes as capital movement liberalization, labor force shifts, and the possibility of internal and international investments proved the worth of financial markets (Moșteanu, 2019). Risk management turns out to be a significant element of most markets; if people know how to avoid or minimize risks, they can maintain a healthy economy and economic growth.
Financial Institutions
Understanding the essence of financial institutions is a part of financial management. These institutions are intermediaries between borrowers who need money and savers who have a funding surplus (Moșteanu, 2019). Urban and Wójcik (2019) add the characteristics of sustainable finance as new business opportunities for investors. In general, many financial institutions, including banks, corporations, and banks, make the financial market and the whole system work. Investment banks are financial institutions that become direct intermediaries for complex transactions like acquisitions or mergers between corporations and governments (Urban & Wójcik, 2019). Other users who access such institutions as Goldman Sachs, Citigroup, Credit Suisse, and Merrill Lynch are pension and hedge funds or other financial intermediaries. Commercial banks are institutions to analyze and accept deposits, make loans, and offer checking or other account services (Titman et al., 2017). Small businesses and individuals may use the services of such organizations like Bank of America Corp., Credit Agricole Group, or HSBC Holdings PLC.
Financial services corporations like General Electric Capital or CIT Group aim to provide commercial loans, insurance, and other leasing and financial services to customers. The users of these institutions may be retailers, dealers, lenders, and investors. In most cases, such financial conglomerates choose several institutions for one common purpose. Pension funds introduce another group of financial institutions funded by governments or larger corporations to elaborate retirement plans through trust departments. In most cases, employers in any sphere manage pension funds for their employees. Mutual funds, on the contrary, are investment organizations that allow individuals to invest in securities defined within a financial market (Titman et al., 2017). Working people prefer to use mutual funds as a diversified holding for their money. Load mutual funds are organized through brokers or advisors and require a commission, while no-load funds have neither sales commissions nor intermediaries.
Capital Transfers
Capital transfers are vital for financial markets and institutions because these operations promote a change of asset ownership between parties. There are many conditions under which the decision to transfer capital is made. For example, one party should raise cash by asset deposing, while another should rely on asset acquisition. A commensurate change of assets occurs with no serious impact on the saving of both participants. People use trusted financial intermediaries for their capital flow transfers, addressing recent internationalization and digitalization changes (Moșteanu, 2019). Three primary ways for capital to be transferred are a direct transfer of money/securities/funds, indirect transfers through investment banks, and indirect transfers through financial intermediaries.
Direct capital transfers mean the decision of a company or another owner to sell its stocks directly to a saver who becomes a good investor and offers the necessary sum of money. Small organizations and individuals usually prefer this type of capital transfer to save time and avoid unnecessary commissions despite the increased risks and uncertainties (Moșteanu, 2019). Investment banks that participate in capital transfers introduce another form of money exchange. This approach is characterized by the presence of a middleman who takes and resells securities. Still, all operations are done within the same transaction of the primary market. Finally, indirect transfers with the help of financial intermediaries allow savers to invest their funds in exchange. Banks, insurance organizations, and funds can participate and offer loans to borrowers on their conditions. The distinctive feature of this transfer is that several transactions are possible, hiding a primary source of investment and increasing money efficiency.
Financial Markets
In economics and financial management, financial markets are significant places for buyers and sellers to organize their activities. Any ordinary market is a location where individuals are able to exchange their items and meet their personal and professional needs (Moșteanu, 2019). Today, markets can be physical and virtual, depending on available resources and demands. A financial market is where money and different financial instruments become the main form of exchange (Moșteanu, 2019). In the era of digitalization, such markets open new enclosures by replacing financial institutions and creating new opportunities for users (Storm, 2018). These markets help identify, understand, and exchange financial claims and transactions safely.
Several forms of financial markets exist, and the differences between places define the essence of transactions and opportunities for stakeholders. For example, a physical asset market is filled with real, tangible products that may lose their value with time due to wearing or tearing. In contrast, a financial market focuses on derivative products and services, the value of which depends on other assets, not some external factors.
Another significant controversy is based on the time frames of financial operations. Spot markets support transactions locally for on-the-spot delivery, while futures markets are effective for buyers and sellers who want to organize a deal in several days. Modern financiers are also ready to work with individuals who promote various debt securities, provoking the creation of money markets (short-term and highly liquid debt stocks) and capital markets (long-term and intermediate debt stocks). The quality of capital and securities determines the promotion of two more market types – primary and secondary. Compared to primary markets, where corporations can raise new capital and issue new shares under the most favorable conditions, secondary markets contain the already existing securities and prices. Finally, financial markets may differ in terms of their privacy. A private market is considered if only two parties are involved in a negotiation; a public market is chosen if standardized contracts with no restrictions are preferred. Transactions within private markets are more flexible because the parties are free to discuss the best conditions and choose available resources.
Conclusion
The chosen research strategies and articles become effective for a better understanding of financial institutions and markets. It is not enough to learn definitions and remember the example of every transaction. Understanding the differences between operations and professional relationships demonstrated by buyers and sellers is more important. There are many conditions under which people might need the services offered by an investment or commercial bank or choose between pension and mutual funds. Capital transfers also depend on how available resources and conditions. The idea of financial markets continues to change and improve because of newly digitalized opportunities, but the essence of their types remains the same.
References
Moșteanu, N. R. (2019). International financial markets face to face with artificial intelligence and digital era. Theoretical & Applied Economics, 26(3), 123-134. Web.
Storm, S. (2018). Financialization and economic development: a debate on the social efficiency of modern finance. Development and Change, 49(2), 302-329. Web.
Titman, S., Keown, A., & Martin, J. (2018). Financial management: Principles and applications (13th ed.) Pearson.
Urban, M. A., & Wójcik, D. (2019). Dirty banking: Probing the gap in sustainable finance. Sustainability, 11(6). Web.