On The Patterns Of Financial Activities

Traditional financial theories regarded financial markets and financial intermediaries as two competitive and alternative institutions, thus categorizing all financial activities as direct or indirect finance only from the perspective of financial intermediaries .This kind of understanding regarding the relationship between markets and intermediaries, and the dichotomy of direct/indirect finance couldn' t properly explain the reality of modern finance and resulted in cognitive confusions. This paper clarifies some related confusions regarding the connotation, denotation of, and the relationship between markets and intermediaries, and subsequently offers some new perspectives in corresponding aspects. The author stresses financial markets' role as an institution in which certain financial activities are executed in the form of negotiable financial instruments, and that markets are rather "markets for the intermediaries" than "markets only for the ultimate surplus and deficit sectors" . This paper then proposes the idea to classify all financial activities into?"market finance" and "non-market finance" by the nature of the financial instruments in which they are executed. Further, a new theoretical framework is proposed in which all financial activities are classified into four categories, namely, market indirect finance, market direct finance, non-market indirect finance and non-market direct finance. The application of this framework is also demonstrated in the cases of assets securitization and venture capital. This paper concludes that market indirect finance is on the increase in modern American finance and offers preliminary explanations .It's implication for China is presented at the end of this paper.