Just before we look at the suppliers and demanders of funds, it is in order that we familiarise ourselves with the environment in which these suppliers and demanders of funds exist. They do exist in the financial markets. Financial markets are forums in which suppliers of funds and demanders of funds can transact business directly. A primary market is the one which “new” securities are sold. The secondary markets can be viewed as “pre owned” securities market. Fianacial institutions such as banks actively participate in the financial markets as both suppliers and demanders of funds.
Suppliers and Demanders of Funds
Key participants or rather suppliers and demanders of funds in the financial markets are individuals, businesses, and government. firms and government
Governments are typically net demanders of funds. They typically borrow more than they save. This is because of the need to finance State and local projects & operations.
Business firms are are also net demanders of funds. They typically borrow more than they save. The borrowing can be attributed to Investments in production of goods and services.
Individuals as a group are the net suppliers of funds for financial institutions (They save more than borrow). Some are neede of loans to finance house, auto, among others. The individuals are therefore Typically the net suppliers of funds
The investment Process
The investment process involves the financial institutions (banks, savings and loans, savings banks, credit unions, insurance companies, pension funds) actively participate in the financial markets as both suppliers and demanders of funds.
The financial markets (Money and capital markets) act as forums in which suppliers of funds and demanders of funds can transact business directly
Then we have the suppliers and demanders of funds whose roles are well covered above. We will discuss in details the process in our consequent articles. Let us now look at the types of investors.