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Complexities of the U.S. Financial System - Essay Example


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Complexities of the U.S. Financial System

However, in this study, I seek to express the impacts of the same in U.S to individuals, businesses and the economy in general. A well developed financial market that smoothly operates can be of great significance to the economy by contributing towards its efficiency and health. A strong positive relationship exists between the economic growth rate and the development of financial markets. To the economy of U.S, the development of strong financial markets that have then continued to exert huge positive pressure that have greatly impacted on the economy. Specifically, the growth of financial markets has efficiently aided the direct flow of investments and savings in the economy. As a result of this, there has been huge accumulation of capital in the economy, as well as the enhancement of production of goods and services in the country. A good combination of flourishing financial market, diverse array of financial instruments and products and well developed financial institutions also attracts more borrowers and suits the lenders’ needs hence, positively impacting on the economy. Furthermore, the financial markets in U.S due to their efficiency have lowered the economy’s search and transaction costs (Norton & Melicher, 2013). However, the activities of financial markets largely depend on factors such as inflation. For instance, during times of depression, the capital levels decline as a result of low savings and investments: hence, further impacting on the economy negatively. To the businesses

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and individuals, the financial markets have greatly provided them with more liquidity especially when the market is large. This has then enhanced the number of participants and securities available to businesses, as well as enhancing the trading opportunities available to them. Consequently, the financial markets have also led to accumulation of capital by businesses and enhanced their production capacities. Other than this, the prices of the instruments and credit offered in the financial market acts as a signal to the producers on how to price their commodities too. These signals also help in directing funds from households and other businesses to the other consumers, businesses and the government or investors who would like to borrow the same (Norton & Melicher, 2013). The role of U.S Federal Reserve The Federal Reserve System in the U.S (formed in December 23, 1913) is the central system of banking, and plays a crucial role in the maintenance of the economy. Generally, it may be referred to as the bank of the USA government. Initially formed to provide responses to the financial panics that gripped the country around the year 1907, its roles have greatly expanded and its structure evolved. Its key objectives under the Federal Reserve Act are to ensure maximum employment, ensure the stability of prices and to moderate the long term interest rates in the economy. Other duties currently performed by it includes supervision and regulation of the activities of banking institutions, monitoring of the country’s monetary policy, maintaining stability of the financial system, as well as provision of financial services to depository institutions, other foreign financial institutions and the USA government (Norton & Melicher, 2013). Functions/roles of the Federal Reserve Chairman The Chairman (appointed by the President) is tasked with the duty to


Complexities of the U.S Financial System Student’s Date: How the U.S. financial markets impact the economy, businesses, and individuals The term financial market may be simply defined as the place where different companies find capital that they use to expand their operations…
Author : americabaumbach
Complexities of the U.S. Financial System
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