They lend such surplus fund to the borrowers like households, businesses, governments who want to finance their personal expenditures like purchase of houses, cars and furniture. This kind of flow of funds form the lenders to the borrowers follows two ways known as direct finance and indirect finance. In the former concept the borrowers have access to the finance from the lenders directly. They do this by selling their fiscal tools which represent a claim on the potential proceeds and assets of the borrower. Financial instruments are assets for individuals who buy them and are liabilities for individuals who sell them. Through this process of buying and selling of securities the flow of money is occurs in the economy which is very vital for the economy. Hence financial markets are the medium through which such transactions happen. The financial markets comprises of equity market, debt market, derivative market and foreign exchange market. Each of this market acts as the medium of flow of fund in the economy. This report will analyse the importance of the financial markets and the role which they play in the development of international trade and economic development. Discussion Financial System Structure The financial system of an economy comprises of three components Financial markets Financial institutions Financial regulators Each of the above components has a specific role in the economy. The financial institutions are important players in the financial markets since they perform the role of an intermediary and hence they determine the flow of funds. The financial regulator’s role is to monitor and regulate the participants of the monetary system. At the heart of this is the fiscal market. It facilitates in the flow of funds in the economy (Cho, 1989, pp. 88-92). Figure 1: Structure of Financial System The financial institutions use financial instruments to regulate the flow of funds in the economy. Financial assets or financial instruments are intangible assets that are expected to provide future benefits to the owner of the instrument in the form of future cash. Some financial instruments are known as securities which include bonds and stocks (Fry and Maxwell, 1995, p. 282). Financial markets and their economic importance Financial market is a place where there is exchange or trading of financial instruments. The major economic functions of the financial markets are Liquidity Price discovery Reduction of transaction costs. Liquidity The financial markets provide an opportunity to the investors to sell their financial instruments. Liquidity means the ability of an investor to sell an asset in the market at its fair market value anytime he wants. Without this liquidity, an investor had to hold on to the financial instrument till the conditions arise to sell it or the issuer of the asset is contractually obligated to clear the obligation (Stiglitz, 1989, pp. 55-61). The liquidity of an equity instrument is until the company is liquidated voluntarily or involuntarily. For a debt instrument liquidity comes when it matures. All international financial markets provide some liquidity to the investors though they have different degrees of liquidity associated with it (King, Robert and Ross, 1993, pp. 717-723). Price discovery It denotes to the determination of the price of a traded asset in a financial market by means of transactions between
International Financial Markets Contents Contents 2 Introduction 2 Discussion 3 Financial System Structure 3 Financial markets and their economic importance 4 Importance of Bond Market 6 Importance of Equity Market 8 Importance of Foreign Exchange Market 10 Importance of Derivatives Market 11 Conclusion 12 References 13 Introduction Financial markets are vital for any economy…
Japan has also incurred high public debt for which its credit rating has been downgraded by Standard and Poor’s (S&P) in January 2011. In August of the same year, S&P downgraded long-term U.S. sovereign debt from the highest possible rating, AAA, to AA+.
However, over the times it has been found that this key function has been compromised as the secondary trading now accounts for a high proportion of its trading activities. Basically, stock exchange is a platform or market place that provides services for traders and stock brokers.
It was in this in this meeting gathering that the Bretton Woods system was born.
Initially, this has initiated an acceleration of global activity. However as the system progresses, its flaws surfaced out so intensely that the former United States President Richard Nixon sentenced it to its demise on August 1971.
International Financial Market trends have been on a growth rate since the last three decades. This study is to highlight the growth trend that has been achieved in the international financial market showing the curve over the past three decade. The paper starts with the basics of the global financial markets and moves to explaining the components viz., the foreign exchange, international capital and the international stock markets.
The subject of investment management has evolved many theories and concepts to facilitate identification of healthy investment opportunities and allow investors to analyse different investment avenues so as to increase their return. Many of the investment management theories were found worthless in an investment climate which is characterized by innumerable number of investment opportunities with differing categories of risk.
They are of the view that there must be stricter norms for controlling the flow of capital. However, other economic experts like Fischer, (1998) and Summers, (2000) argue that development of international financial markets would lead to improvement in the economies of developing, less developed countries, and it would automatically enhance stability among developed countries.
ression representative economists of these two nations, Harry Dexter White and John Maynard Keynes, respectively led the gathering of economists at the Mount Washington Hotel in Bretton Woods, New Hampshire to formulate a system that will prevent the recurrence of this traumatic
Long-term debt may be raised through several ways, but the most common is through the sale or flotation of bonds. Equity capital, on the other hand, is in the form of stocks, of which there are at least
The role of the capital market is to facilitate an exchange of funds among all member participants. By doing so, members present themselves with having surplus funds or a deficit of the same. As a result, trading is
Euro zone is at risk because all the members of the European Monetary Union (EMU) were guarantees of each other when they were applying for the loan. Because of this, all the member state of Europe including those
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