Financial Markets and Institutions

Financial Markets and Institutions

Introduction

Financial markets include capital markets, money markets, primary markets and secondary markets. The money market is the market where short term securities are traded. Capital market is the market where long term securities are traded. Primary market deals with the issuance of new securities whereas secondary market deals with the currently trading securities. A strong and efficiently operating financial market play vital role in creating wealth in the economy. (Econ, 2005). There is a strong relationship between the financial markets and the wealth of the economy. When the financial markets fall it became a worry for the economist and for the investors as well because the wealth of the economy is directly linked with the financial markets performance. If the financial markets are not performing and it is bearish then there is a probability that the economy of the country may affect. But if the financial markets are performing well then and it is bullish then it will create wealth for the investors and for the economy of the country as well.

Financial Market's Role in Creating Wealth

The U.S financial markets play a vital role in creating economic wealth in the country. The people who invest in the financial markets get high returns when the prices of their shares increase, which boost their confidence to invest again in the financial market. It is obvious that if the people have money either they will save it and invest it in the economy or they will spend it. If the people of the country are spending their money it means that they will buy something, this consumer spending will give the business to the economy. On the other hand if the people are saving money it means that they will invest it in some avenue, investing of the people is also fruitful for the economy of the U.S. Financial markets also play role in pension funds because a significant chunk of pension funds invest in the financial markets which means that if the financial market of the U.S is performing good then the value of the pension funds will increase which adds value in the economy of U.S. The bullish trend in the financial markets is an encouraging factor in the consumers spending. The firms who want to expand its business needs capital which can be raised by issuing the firm's shares in the stock market. Through issuing more shares the firm can borrow more money at low cost. So the financial markets also help firm to expand its business which resulted employment and other economic benefits. (Pettinger, August 8, 2011)

Vanguard-Large Cap mutual fund (VLACX)

Vanguard Equity Investment Group represents Vanguard Large-Cap Index Fund Admiral Shares (VLACX) .The fund provides the opportunity to a huge capitalization market at low cost by investing in 750 largest publicly traded stocks of U.S, which is responsible of 85% of U.S. entire market cap. The investors who are looking for long term investments in the largest ...