Financial Institutions

Investing in any security market is an excellent way for an investor to make liquid assets earn money. The many different kinds of securities allow for investors to customize their risk and reward ratios or target what parts of the market they are most interested in supporting. If investors did not buy securities, many businesses would struggle or fail, but security markets make it possible for investors of all kinds to put their free capital to work earning money and strengthening the economy. Investing in the stock market specifically is one of the most balanced forms of security investment, in terms of risk and reward. Virtually anyone can make stock market investments thanks to the OTC market, it’s easy and affordable for investors regardless of how much they have to invest. Stock market returns are relatively immediate and stable, unlike some of the longer term or, conversely, more volatile types of security investment.

The only way to have a deliberate and meaningful impact on the economy is through the study of financial institutions. There is no market without the institutions that operate within that market. In particular it is important to understand the role of the Fed and major banks to understand how inflation and the amount of currency in the market is controlled. Value of equity and risk of investments are also better understood through the study of insurance companies and investment firms. These institutions control the creation and flow of money and the only way to be a part of that system is to understand it, a process that begins with study. The study of financial institutions also helps a student of finance choose a career path as there are many different roles to be filled.

Risk sharing is a way for investors to minimize their individual risk by sharing losses across a group of other investors. Generally, it involves a shared reserve pool group member pay premiums into and are compensated out of when losses are incurred. This method of self-insurance typically benefits from the mutual interest of several different parties, though it could theoretically be formed by investors of many different kinds. A common example of risk sharing would be a vendor and its sole remaining supplier sharing the risk of a product failing to sell as well as projected. This model would not only protect both business from the impact of loss, but it incentivizes both businesses to help the other succeed. Shared risk implies shared responsibility for success.