Business Financing and the Capital Structure Essay
Business Financing and the Capital Structure
The financial marketplace is the area where companies engaged in financial trading are able to get capital to run. The financial market can also be referred to as capital markets. Stock markets are the place where companies come to trade among themselves; they represent individual investors or corporate investors. Trade in stocks has been deemed among the most lucrative areas a person can trade in; the returns are good. Stocks can simply be defined as shares bought for trading purposes and profits gained are ploughed back into the U.S. economy. (Saccomani and Chambers, 2008)
Trade in U.S. financial markets offer various benefits; an organization can get loans to fund their activities through floating of bonds. When organizations are able to run efficiently then everybody gets to benefit, the government benefits through increased tax collection and more people get employed.
The stock market offer individuals an avenue to put their money in lucrative stock instruments where the funds are managed by financial experts. Individuals do not have to worry about their limited financial expertise because at the stock markets well informed brokers or their employees will help them. Individuals are offered a variety of trading avenues which involves minimal labor and less capital intensive. (Saccomani and Chambers, 2008)
The Federal Reserve is a name that is used to define the Central Bank in America. The bank was a creation of U.S. Congress for purpose of offering a safer and easier trading environment in America. The Fed is tasked with the management of the American monetary policy. They also regulate banks as well as monitoring risks at the stock markets. The Fed is comprised of seven members; who constitute the board of governors. Members of the board also constitute the F.O.M.C. (Federal Open Markets Committee); this committee decides on what interest rates to be charged by banks as well as purchase of treasuries. The Fed`s primary role is that of regulation. (Ltaifa et al, 2009)
The Fed chairman`s role is that of a supervisor; he is tasked with the role of bringing the board to consensus of various monetary issues. The chairman is a presidential appointee hence he reports to the president from time to time on the country`s financial matters. The chairman also has the responsibility of steering the committee on interest rates. (Ltaifa et al, 2009)
Departments or components of the Fed Reserve need to play their respective roles effectively so as to take the country in to financial success. The chairman should always maintain a steady control of all fiscal policies. The board should not enact self-centered policies that may endanger the banking sector or stock markets. The board and the chairman have to make prudent assessments of U.S. financial performance before taking any steps meant at changing any monetary policy.
Interest rates affect the economy; particularly the spending power of individuals. The rates charged on bank loans lays a heavy burden on citizens; the net effect is loans become expensive hence doing business becomes harder. Higher interest rates on returns at the stock markets offer a reversed effect to the citizen; this brings about more disposable income because the return on investment is higher. (Batten and Szilagvi, 2011)
The world suffers when markets get affected by whatever elements; this happens because the various economies around the world are interconnected hence any financial downfall of one will weaken the other. The Euro zone crisis is one such example where a problem begins in one country but after sometime affects a number of countries within same geographical location; countries that trade together. In the U.S. such a crisis occurred between 2007-2010, individuals found themselves not being able to finance their loans and other credit obligations.
Care and keenness is needed when one wishes to traverse this terrain.
Saccomanni, F., & Chambers, A. (2008). Managing international financial instability: National tamers versus global tigers. Cheltenham: Edward Elgar.
Ltaifa, Navil Ben, Kaendera, Stella, & Dixit, S. V. S. (2009). Impact of the Global Financial Crisis on Exchange Rates and Policies in Sub-saharan Africa. Intl Monetary Fund. Batten, J., & Szilagyi, P. G. (2011). The impact of the global financial crisis on emerging financial markets. Bingley, U.K: Emerald.
Subject: Business & Economy,
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 1 September 2015
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