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FINANCIAL MARKET PARTICIPANTS

Written by cool

FINANCIAL MARKET PARTICIPANTS

 

One of the basic, if not the most important, function of the financial market is to connect those subjects of economic and social life who at a certain moment have a surplus of financial resources with those entities that lack those resources. From this function it can be seen that almost all participants in economic and social life can be participants in the financial market. Depending on the development of the financial market itself, the number of participants in it also differs. In practice and theory, the classification and grouping of participants differs, so they can be viewed from several aspects.

The simplest and most comprehensive is probably the division into a narrower and broader understanding of market participants. The broader concept encompasses all subjects of social life, who participate in the financial market in different ways and in different relationships. These entities can be grouped into four major sectors – the public sector, the corporate sector, the household sector, as well as the sector of foreign entities. Each entity from one of these four sectors can be found on both the supply side and the demand side of the financial market, depending on whether it has a surplus or a shortage of funds. The role of the public sector, ie the state, state institutions and public companies, in the market is very large, because it is deeply connected with everything else. If the public sector finds itself on the demand side for funding, it will most often do so through the issuance of securities by central government, local government or state-owned enterprises. The economic sector includes a large number of economic organizations, very different forms of ownership, size and business philosophy that belong to various branches of activity. This sector also appears on the financial market on the supply side and on the demand side for financial resources. If they are on the supply side, economic entities, in the desire for profit, invest surplus funds, while, when they are on the demand side, they issue their securities and thus get the necessary funds to finance their business. The population sector is the largest in number because it brings together a large number of families, who have the opportunity to save on the basis of a positive difference between real income and current consumption.

In addition to such a broad view of financial market participants, we have said that there is a narrower understanding. According to this understanding, we could divide all participants into two groups, non-financial and financial participants. The difference between these two groups lies in the basic activity of the participant, so the basic activity of non-financial participants is not related to the financial market, but only appear on it if they have a surplus of financial resources or need them to finance business. Financial participants have a key role to play in linking supply and demand in the financial market, whether directly (brokers, dealers and investment banks) or indirectly (banks, investment funds and other financial institutions).

There is another division that we could make, and that is the division of participants into investors and issuers. This division may be too broad, but it best reflects the very essence of the financial market, which lies in linking the supply of funds with the demand for them. On the supply side are investors, who can be institutional or individual, while issuers are on the demand side in search of funds, which they raise by issuing a wide range of different securities.

Whatever division is made, it will not be wrong, because almost all elements of economic and social life participate in the financial market, and it is only a question of the angle from which all of them are viewed. As this story about the participants in the financial market was relatively general, the following will be about the specific entities that appear on it.