Assignment One:
Complexities of the U.S. Financial System
Christine Capell
Professor.Umair Warsi
FIN 100 - Principles of Finance
May 5, 2013

The US financial markets impact the economy, businesses, and individuals in a variety of ways, one of which is providing a way for businesses to raise capital by issuing securities. The capital markets enable new companies to raise funds to grow. Typically, banks would not lend in these situations because of the lack of sufficient collateral and high risk. Without the public securities markets or private venture capitalists to provide the funding for these higher risk investments, the economy would be much smaller. The markets and the economy are closely linked and are especially reactionary to the each other, i.e. if the economic indicators show recession, the markets typically turn down, particularly the equity markets. Currency markets, FOREX or foreign-exchange markets, and the mortgage markets will move in response to the health of the economy and the movement of interest rates. Should those economic indicators prove to be positive, then the markets turn upwards or even “fly”. When the markets experience an intense downtown, it can lead to a severe recession with the prices of financial assets declining sharply, which can cause individuals, businesses, and financial institutions to become less able to handle their debt payments or it can even lead to financial system failure with widespread bank closures and mortgage foreclosures in extreme cases such as the 2008-09 crisis, when the U.S. Government and the Fed were required to step in and take action to prevent total system failure. The U.S. economy still hasn't fully recovered.
The U.S. Federal Reserve Is a Central Bank of the U.S. and is responsible for monetary policy and regulating the banking system. The Federal Reserve System consists of member banks,