EMERGING FINANCIAL MARKET

Emerging Financial Market

Emerging Financial Market

Introduction

The financial markets of an economy are the key to evaluate the viability of the entire country. On the other hand, the financial systems and structure are also very important in making an economy effective and invulnerable (to some extend) from the inside and outside shocks. The researchers and theorists have categorized the world economies into different classifications such as developed economies, developing economies and under developed economy. The base behind this classification is the size and diversified aspects of the economy. The financial system architecture for each level of economy is different from the other one because of its requirements. It is obvious that the developed economy needs more comprehensive rules and regulations as compared to the developing economy. The developing economy is also known as emerging economy. The term “Emerging Economy” was coined in 1981 by Antoine W. Van Agtmael of the International Finance Corporation of the World Bank. It can be defined as a country's economy which is progressing towards advancement in term of bigger size and well define structure. It is a fact that the country with emerging economy witnessing higher investments in tier financial markets. The reason behind this is that the emerging market often offers higher returns because of rapid growth in their markets. However, it is also a fact that the emerging markets are attached to higher risks due to political instability, infrastructure problems and poor law and order situation. The emerging economies vary in term of the size of the nation. It is possible that the nation with the large number of population is witnessing emerging economy and vice versa. The research showed that the emerging markets constitute around 20 percent of the world economy where as the population of these emerging economies constitutes 80 percent of the global population. Therefore, it can be inferred that the emerging economies have to address population issues (Davis, et.al, 2000, pp. 16).

The financial system architecture of emerging economies has to address issues of monetary policy and exchange rate fluctuation. The country “India” can be categorized as emerging economy. The management body of India has address issues of corporate governance, internal controls and corporate risk management, control in financial institutions, liquidity, interest rate, foreign currency risk in detail, system-wide policies for containing risk (including liquidity risk), development of deep, liquid and sound short and long-term money and capital markets and took measures to prevent and handle financial crises. The underlying emerging economy witnessed severe issues on the financial market front. The financial markets of India need to have reformed policies so that the financial markets can attract the foreign investors. The issues of documentation increase the transaction cost for the foreign investors. Moreover, the fluctuation of the Indian rupee is also a mater of concern for the foreign investors. The development of financial markets is a very important task for an emerging economy to address challenges. The report will highlight options and suggestions for an effective financial system ...