3 what are primary securities and secondary

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Unformatted text preview: o major differences between brokers (such as security brokers) and depository institutions (such as commercial banks)? 3. What are primary securities and secondary securities? 4. What is the link between asset diversification and the liquidity of deposit contracts? Other Aspects of Specialness The theory of the flow of funds points to three principal reasons for believing that FIs are special along with two other associated reasons. In reality, academics, policymakers, and regulators identify other areas of specialness relating to certain specific functions of FIs or groups of FIs. We discuss these next. The Transmission of Monetary Policy www.federalreserve.gov The highly liquid nature of bank and thrift (depository institution) deposits has resulted in their acceptance by the public as the most widely used medium of exchange in the economy. As you can see from the notes to Table 1–2, at the core of the three most commonly used definitions of the money supply—M1, M2, and M3—lie depository institutions’ deposit contracts. Because the liabilities of depository institutions are a significant component of the money supply that impacts the r...
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