passage below require analysis and breakdown

There are three main types of financial institutions in our economy. They each play key role in the stability of the markets. Depository financial institutions are banks and institution that accepts deposits. Their function is to collect money from the public, like credit unions, banks and extend them as loans to borrowers. This institution provides important services to the economy liquidity, like investment securities safekeeping of deposits and pooling of funds. Banks invest in government securities to meet the reserve requirements and earn interest from the investments (Kenton, 2020).

Contractual financial institutions consist of pension funds and saving insurance companies. They get funds from the policy buyers which they use very long-term providing financial protection to buyers of insurance policies. Most investments are over 10 years or more, they get funds in the way on premium payments. These insurance policies are in the from of life insurance and non-life insurance policies.

Investment financial institutions are like mutual funds, investment banks and brokerage firms the help with investment of funds. They have separated from commercial banks; they are responsible for mutual fund companies raising funds form a pool of money from the various investors and then invest money from this pool in equity and debt market. This is in the from of joint venture, equity and debt syndications, they serve as middlemen between investor and institutions.

These financial institutions interact with various markets and are active investor in capital market, money market, Spot, derivatives, primary and secondary in their operations (inclusive of OTC). People and institutions trade financial securities as a mode of raising capital, like stocks, bonds, commercial paper. Pension fund also buy stock in the capital markets by investing their funds for buying and selling of currencies. Depository institutions can be central banks and regularly buy and sell foreign exchange in the market using the deposits in their books (Brigham & Ehrhardt, 2017).