Research Paper

The savings-investment process involves the direct or indirect transfer of individual savings to business firms in exchange for their debt or stock securities. The more common way money is transferred from savers to investors is using indirect transfers. The primary securities market is involved in the indirect transfer. The role of savers is to provide money to purchase the business firm’s securities. This is not a direct transfer that happens, financial institutions can facilitate the savings-investment process. This is done by purchasing the securities being issued by a corporation and then reselling the securities to savers. A financial institution is part of the typical capital formation process. In this case, savers deposit/invest money with a financial institution. The financial institution issues its securities to the saver. As money passes from savers through a financial institution to a business firm, a debt instrument or security is created by the financial institution and by the business firm. (Pg.24 Melicher).

Direct Transfers

Savers > Money Securities > Business firm

Indirect Transfers (investment banking firm)

Savers > Money Securities > Investment Banking firm > Money securities > Banking firm

Indirect Transfers (Financial intermediary)

Savers > Money> Financial Institution > Money > Business firm

Institution Securities Firms Securities

The Federal Reserve System is the central bank of the United States. It is an independent agency of the U.S. government. (Lecture). The Federal Reserve Act directs the FED to implement the monetary policy of the economy to the economy to promote price stability, maximize employment, maintain long-term economic growth, and moderate long-term interest rates. Five functions of the FED is: supervising and regulating financial institutions, managing the U.S. monetary policy, providing wholesale banking services, functioning as a fiscal agent for the U.S. Treasury, and functioning...