Financial Markets and Economy

What are financial markets? What function do they perform? How would an economy be worse off without them

Financial markets are institutions and procedures that facilitate transactions in all types of financial claims. Financial markets perform the function of allocating savings in the economy to the ultimate demander(s) of the savings. Without these financial markets, the total wealth of the economy would be lessened. Financial markets aid the rate of capital formation in the economy.

The economy would be worse of without financial markets for several reasons.

Savers would not be able to earn a return on their savings. People who need capital wouldn't be able to get the funds from other people and so would have to rely only on their own money. The inability to get capital from others would slow the growth of businesses and reduce the purchases of consumers because they can no longer get loans. These would lead to decreased demand for products and services as well as a decrease in available jobs both of which would harm the economy.

Get quality help now
Doctor Jennifer
Doctor Jennifer
checked Verified writer

Proficient in: Business

star star star star 5 (893)

“ Thank you so much for accepting my assignment the night before it was due. I look forward to working with you moving forward ”

avatar avatar avatar
+84 relevant experts are online
Hire writer

Distinguish between the money and capital markets

Money Markets facilitates transactions using short-term financial instruments; whereas, Capital Markets facilitates transactions using long-term financial instruments.

A money market is a market for short term debt securities such as banker’s acceptances, commercial paper, repos, negotiable certificates of deposit, and Treasury Bills with a maturity of one year or less and often 30 days or less. Money market securities are generally very safe investment which returns a relatively low interest rate that is most appropriate for temporary cash storage or short-term time horizons.

Get to Know The Price Estimate For Your Paper
Topic
Number of pages
Email Invalid email

By clicking “Check Writers’ Offers”, you agree to our terms of service and privacy policy. We’ll occasionally send you promo and account related email

"You must agree to out terms of services and privacy policy"
Write my paper

You won’t be charged yet!

A capital market is where debt or equity securities are traded.

What major benefits do corporations and investors enjoy because of the existence of organized security exchanges

Organized stock exchanges provide for:

  • A continuous market. This means a series of continuous security prices is generated. Price changes between trades are dampened, reducing price volatility, and enhancing the liquidity of securities.
  • Establishing and publicizing fair security prices. Prices on an organized exchange are determined in the manner of an auction. Moreover, the prices are published in widely available media like newspapers.
  • An aftermarket to aid businesses in the flotation of new security issues. The continuous pricing mechanism provided by the exchanges facilitates the determination of offering prices in new flotation’s. The initial buyer of the new issue has a ready market in which he can sell the security should he need liquidity rather than a financial asset.
Updated: Feb 22, 2021
Cite this page

Financial Markets and Economy. (2016, Nov 14). Retrieved from https://studymoose.com/financial-markets-and-economy-essay

Financial Markets and Economy essay
Live chat  with support 24/7

👋 Hi! I’m your smart assistant Amy!

Don’t know where to start? Type your requirements and I’ll connect you to an academic expert within 3 minutes.

get help with your assignment