Complexities of the U.S. Financial System



Complexities of the U.S. Financial System

Introduction

Current environment suggest that financial systems has turn out to be complex. The reason for this complexity is due new adaption and emergence. Hence, this has become an example of complexity in action. The focus of this paper would be on Complexities of the U.S. Financial System covering different aspects that are related to this system.

Discussion

1. US financial markets impact the Economy, Businesses, and Individuals

The contribution of US financial markets has been enormous considering the health as well efficiency economy, business and individual. The reason for is the strong relationship which exist between the economy health and development of financial market and growth of economy. Slight fluctuation in financial market could adversely impact directly on the economy, business and respond of individual. According to theories, through financial markets it turned out to be easy to raise capital, transfer of risk through using derivatives instruments, recovery of price, global transaction, liquidity transfer in the money market and hence, international trade turn out to be much easy. According to different researches, when financial market are performing well, each level i.e. firm, industry and cross country exercise huge positive effect on the growth of economy (Global Economics Crisis Resource Center, 2012).

Similarly, when financial markets are not performing well, this results rise in interest rate and hence, credit facility will reduce. Increase in interest rate is due to the fact that risk at this situation is higher. According to theories, higher the risk is higher will be interest rate. Through this way banks make money in order to recover their cost and defaults. Considering this fact, business need credit for running their operations, for them upheaval financial markets would increase their interest expense and they would be facing problem to run their business. This further results in prices to increase as operating costs are higher. Same situation occur in 2008 financial crisis. When such cases take place, business needs to reduce their staff and this increase unemployment rate in the country. When there are so many jobless people in the country, purchasing power of the country is impacted i.e. consumer will stop spending money. This state that owners are not spending money on their businesses and this does not only impact on business as few customers would be spending money on the products rather this will impact on economy as whole. Few customers spending money will leads to more downsizing and hence this few customer will turn to fewer customers. In order words, any fluctuation in US financial markets impact firstly on Businesses, Individuals and then on the Economy. It is considered to be a cycle that perpetuates itself (Johnson, Jefferies, & Hui, 2012).

2. Role of the US Federal Reserve, the Federal Reserve Chairman, and Board

The central banking system of US termed as Federal Reserve - FED. In order words it is the central bank of the United States established by Congress in 1913. The role of FED is purely related ...