A Comprehensive Analysis of Financial Markets and Institutions

This report provides an overview of key concepts in financial markets and institutions. It begins by explaining quantitative easing as a monetary policy tool used by central banks, citing the Federal Reserve's actions. The report then discusses the role of underwriters in initial public offerings (IPOs), including their responsibilities in helping companies raise capital and prepare for public offerings. Next, it defines over-the-counter (OTC) markets, highlighting their structure and the types of instruments traded. Finally, the report addresses money supply and the various monetary policy tools, such as reserve requirements, open market operations, and interest rate adjustments, used to manage it. The report references several academic sources to support its analysis and provides a comprehensive understanding of these crucial financial concepts.

Running head: FINANCIAL MARKETS AND INSTITUTES 1
FINANCIAL MARKETS AND INSTITUTES
Name of student
Institution Affiliation

FINANCIAL MARKETS AND INSTITUTES 2
FINANCIAL MARKETS AND INSTITUTES
Q 1
Quantitative easing refers to the alternative monetary policy used by the central bank of a
country in buying large assets in order to increase the supply of money and encourage spending
in an economy. The unconventional policy has been successfully used by FED whereby it bought
assets from financial institutions to increase its total assets from $882 in 2007 to $4.473 trillion
in 2017 (Khatiwada, 2017).
Q2
Underwriters offer a wide range of services during public offerings. Most importantly, they act
as an intermediary between companies issuing stocks and investors. In addition, the underwriter
lends a hand to a company in the preparation of an Initial public offering (IPO).Similarly, the
underwriter helps the company to determine the amount of money that it seeks to raise as well as
the kind of securities to be allocated. The underwriter is also responsible for the creation of a
prospectus to be used in marketing the IPO to potential investors (Razafindrambinina & Kwan,
2013).
Q 3
An over the counter market abbreviated as OCT refers to a spread out market in which the
members trade directly with one another without the involvement of a broker or a central
exchange. Normally, market participant’s trade in currencies, commodities, bonds, structured
products, derivatives, stocks as well as other instruments of trade. However, the trade of equities
can also be done via over the counter markets. Additionally, such markets have no physical
location, instead all trading activities are carried over the internet (Li & Song, 2019).
Q4

FINANCIAL MARKETS AND INSTITUTES 3
Money supply refers to the total amount of money circulating in an economy in a certain period
of time. This included savings accounts balances, coins, cash as well as other money substitutes.
Various tools of monetary policy are used to increase the supply of money in the economy.
Modification of the reserve requirements by the Fed is one of the policies that may be used. This
refers to a reduction of the amount of money held by Banks against deposits. Lowering of banks
reserve increases the amount of money available for loans, which consequently increases the
money circulating in an economy. Secondly, this is also achieved through open market
operations. An increase in money supply is effected through the purchase of government’s bonds
from dealers which in return increases money supply. Finally, lowering of short-term interest
rates, is also used to increase money supply in an economy (Carpenter & Demiralp, 2012).

FINANCIAL MARKETS AND INSTITUTES 4
References
Carpenter, S., & Demiralp, S. (2012). Money, reserves, and the transmission of monetary policy:
Does the money multiplier exist?. Journal of macroeconomics, 34(1), 59-75.
Khatiwada, S. (2017). Quantitative easing by the fed and international capital flows (No. 02-
2017). Graduate Institute of International and Development Studies Working Paper.
Li, W., & Song, Z. (2019). Dealers as Information Intermediaries in Over-the-Counter Market.
Available at SSRN 3351331.
Razafindrambinina, D., & Kwan, T. (2013). The influence of underwriter and auditor reputations
on IPO under-pricing. European Journal of Business and Management, 5(2), 199-212.