FINANCIAL MARKETS IN MODERN ECONOMIES

Financial Markets In Modern Economies

Market

A market is a place where several trading activities take place. The first thing that comes to mind when we think of any market is the crowd, sellers and buyers, sellers shouting at the top of their voice to sell their wares and customers yelling to get the best deals. It is a place filled with energy and vibrancy. People were self sufficient in the early stages of civilization. They made everything they used, as for example, they used to grow their own food. With the development of civilization, people's needs grew and, it was not easy for a person to produce all that he needed by himself. Hence, people with different commodities to offer started gathering at a place to satisfy their mutual needs. This is how the markets developed.

Financial Markets

A financial market is a market for the creation and exchange of financial assets like equity shares, debentures, bonds, treasury bills, commercial papers. The financial market helps to link the savers and the between them. Financial markets influence both the quality and the pace economic development through mobilization of savings and their channelization to productive uses. It is market for creation and exchange of financial asset.

A financial market is an organization that will facilitate trading of financial products. The financial products are traded in a number of ways between sellers and buyers. These include the use of stock exchanges between buyers etc. Various financial instruments are traded in financial markets as the name itself suggests. The level of trade activity varies in nature. At the macro level, people with excess money lend it to the people who are interested in investing money in various projects (Mishkin and Eakins, 2008).

Apart from buyers and sellers, there is one more player in the financial market. He is the intermediate. In a situation where a person wants to lend, his money amount of interest, but it is not agreed by the person who wants the money, then an intermediate can convince both of them and can make them agree on common terms. These intermediates have a major role in financial markets. There may be different kinds of Intermediaries but all act as a link to mobilize the finances between both parties (Valdez, 2000).

When the allocation of the funds is done performed well, it has two consequences

The rate of return offered to household would be higher

scarce resources are allocated to those firms which have the highest productivity for the economy

Functions of Financial market

Mobilization of savings and channeling then into the most productive uses: A financial market offers mobility to the savings of the public. It helps them to invest their savings in various financial assets or instruments and earn income and capital appreciation. Thus, financial markets mobilize the savings of people and channelize them into the most productive uses.

Facilitate Price Discovery: A financial market includes both the supplier's funds and investors of funds. The demand and supply of funds determine the price of various financial ...