Credit markets, Financial Management

Credit Markets:

The financial system enables supply of funds to support purchase of goods and services and to finance capital investments. In this way, it provides funds both to the demand side (consumers) and the supply side (manufacturer) of the economy. In a well-developed market with adequate infrastructural facilities, transfer of funds takes place directly from the savers of funds to the users of funds. Thus, the transfer takes place either through the disintermediation or the reintermediation processes.

When the market allows direct flow of funds, it is known to be in disintermediation stage. Such direct flow of funds will be made by the issue of financial assets in the form of securities. Differentiating itself slightly from the disintermediation process is the reintermediation process, where the funds flow to an intermediary which invests in the securities issued by the corporates. For instance, individuals invest in mutual funds, which in turn invest in the securities issued by the corporates.

However, in economies where there is no adequate infrastructural support for such direct flow of funds to take place, they generally operate through the intermediation process. Operating in an intermediation stage to fulfill the credit requirements of the different sectors of the economy is the Credit Market. Intermediaries like banks, financial institutions and Non-banking Finance Companies (NBFCs) provide credit for the varying requirements of the consumer and corporate sectors of the economy. This credit extension will mostly be in the form of loans.

 

Posted Date: 9/11/2012 3:28:12 AM | Location : United States







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