The first source is through a financial institution that accepts savings and transfers them to those that need funds. A second source is through financial markets, organized forums in which the suppliers and demander of various types of funds can make transactions.

Financial Markets

    Forums in which suppliers of funds and demander of funds can transact business directly. Whereas the loans and investments of institutions are made without the direct knowledge of the suppliers of funds (savers), suppliers in the financial markets know where their funds are being lent or invested.

Private placement

    Private placement involves the sale of a new security issue, typically bonds or preferred stock, directly to an investor or group of investors, such as an insurance company or pension fund. Most firms can use either private placements or public offering of securities, which is the nonexclusive sale of either bonds or stocks to the general public.

Primary Market

    All securities are initially issued in the primary market. This is the only market in which he corporate or government issuer is directly involved in the transaction and receives direct benefit from the issue. That is, the company actually receives the proceeds from the sale of securities.

Secondary Market

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    Once the securities begin to trade between savers and  investors, they become part of the secondary market. The primary market can be viewed ad a “preowned” securities market.

The Money Market

    The money market is created by a financial relationship between suppliers and demanders of short-term funds (funds with maturities of 1 year or less). The money market exists because some individuals, businesses, governments, and financial institutions have temporarily idle funds that they wish to put to some interest-earning use. At the same time, other individuals, businesses, governments, and financial institutions find themselves in need of seasonal or temporary financing. The money market brings together these suppliers and demanders of short-term funds.

The Capital Market

    he capital market is a market that enables suppliers and demanders of long-term funds to make transactions. Included are securities issues of business and government. The backbone of the capital market is formed by the various securities exchanges  that provide a forum for bond and stock transactions.