Financial market and its roles in accelerating financial system.

Financial market

Financial market refers to any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial markets catch the attention of investors and make it possible for companies to finance their operations and attain growth. Money markets make it possible for businesses to gain access to funds on a short term basis, while capital markets allow businesses to gain long-term funding to aid expansion. Without financial markets, borrowers would have problems finding lenders. Intermediaries like banks assist in this procedure. Banks take deposits from investors and lend money from this pool of deposited money to people who need loan. Banks commonly provide money in the form of loans.

Role of financial market in accelerating financial system

The well-developed, smoothly operating financial markets play an important role in contributing to the health and efficiency of an economy. There is a strong positive relationship between financial market development and economic growth. Financial markets help to efficiently direct the flow of savings and investment in the economy in ways that facilitate the accumulation of capital and the production of goods and services. The combination of well-developed financial markets and institutions, as well as a diverse array of financial products and instruments, suits the needs of borrowers and lenders and therefore the overall economy.

The key functions are:

– Serve as intermediaries for mobilization of savings.

– Help achieve balanced economic growth.

– Providing payment services

– Matching savers and investors

– Generating/distributing information about financial instruments.

– Increasing asset liquidity

– Ensure owners can buy and sell financial instruments cheaply.

– Keeps transactions costs low.

– Risk sharing: Provide individuals a place to buy and sell risk.