CHAPTER 2
What Role Do Banks Play in Financial Markets?
This chapter will explore the role of the banks in more detail. Chapter 1 used the terms “intermediate” and “facilitate,” but this is an oversimplification. These terms are fine for primary markets, but they do not provide insight into what it means for banks to be liquidity providers, which occurs in secondary markets, currency markets, commodity markets and derivatives markets. To better understand the role of liquidity provider, we need to explore how banks provide liquidity by looking at the different central trading platforms, such as exchanges and interbank brokers. We also need to understand why providing liquidity is important to the market by looking at a bank’s clients and their ...
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