Role of the US Financial System

Essay by Aguilar22204University, Bachelor'sA+, May 2008

download word file, 4 pages 5.0

The U.S. financial system is a market for buying and trading of securities in the U.S economy for the purpose of raising capital for companies in financial need. Financial markets are generally separated into short-term and long-term markets. The short-term markets comprise securities with maturities of one year or less and are referred to as money markets. Security markets are divided into organized exchanges and over-the-counter markets. The long-term markets are called capital markets and consist of securities having maturities greater than one year. The most common corporate securities in this category are bonds, common stock, preferred stock, and convertible securities. These securities are found on the firm's balance sheet under the designation long-term liabilities and equities. Taken together, these long-term securities comprise the firm's capital structure.

Security markets exist to aid the allocation of capital among households, corporations, and governmental units, with financial institutions acting as intermediaries. Just as financial institutions specialize in their services and investments, so are the capital markets divided into many functional subsets, with each specific market serving a certain type of security.

For the purpose of providing insight into the role of the U.S. financial system two articles have been selected for their unique scenarios in working within the U.S. financial markets.

Article OneCompanies can seek to raise capital by entering the financial market through initial public offerings (IPO). In 1999 an article was written by Steven Marjanovic about the increasing number of internet software firms in the United States that were looking to raise capital through IPO's. "If you are not in the (IPO) race and have taken a go-it-alone strategy, you'll be left in the dust," said Gary Craft, director of research at E-Offering Inc., a unit of E-Trade Group (Marjanovic, 1999). Internet companies such as E-loan...