passage below require analysis and breakdown

Financial institutions play a key role in connecting individuals and organizations to make financial transactions. Typically, these transactions involve one party needing cash immediately and the other willing to provide it for future cash considerations (Brigham & Ehrhardt, 2017). Depository, contractual and investment institutions play a role in the U.S. economy by managing these transactions.

Depository institutions are those that allow customers to deposit funds. Examples of depositary institutions include commercial banks, credit unions and savings banks (Will, 2020). Customers may deposit cash and receive interest from the bank. Funds that are deposited may be used to provide other services to customers, such as mortgage loans (Will, 2020). Depositary institutions play a role in several different markets including capital, money market and interbank. Interbank markets allow banks and other large financial institutions lend money to one another (Chen, 2020).

Contractual financial institutions are those that receive funds on a consistent schedule from clients and then invest the funds back into the market (Sahu, 2020). An example of this type of institution is a life insurance company. There is a contract between the insurance company and the client. The client sends funds periodically to the insurance company and they are contractually obligated to provide a certain amount of coverage. The life insurance company invests client payments to the market since they likely will not be paying out the policy in the near term, and thus make interest on the funds received. Contractual institutions are involved in the derivative market.

Finally, investment institutions play a key role in the economy as they allow companies to sell stock and bonds in order to generate capital (Brigham & Ehrhardt, 2017). Some instruments are riskier than other from an investment standpoint. For example, common stock is generally riskier than investing in corporate bonds. However, both allow organizations to generate capital in order to grow or fund specific projects, while offering the investor future cash.