Financial System And Economy

Role of financial system

The financial system comprises of economic markets and associations. These are the markets where buying, selling, and other bargaining activities take place pertaining to the cost of the product/services. The only distinction between financial markets and usual market is that in the financial markets persons purchase and deal economic utilities like supplies, mortgage agreements, bonds and so on. Financial organizations are a part of economic scheme; they furthermore play a significant function in economic development by helping the flow of capital from excess unit (savers) to the deficit unit (borrowers). The financial system involves institutions for example borrowing unions, financial banks, investment institutions, insurance businesses etc. Economic components or parties that are engaged can split into different sub-divisions like domestic unit, business associations, and government (Nikbakhat, 22). Business often desires capital to apply development plans; government needs capital to support construction projects; and families often desire borrowings for dwellings, vehicles and other necessities. Providentially, there are other persons or families and enterprises with earnings larger than their expenditures (Neave, 75). These units are referred as surplus units representing surplus allowance position. Therefore financial markets help and facilitate the process of money transfer from the surplus units to the deficits. In other phrases, the reason of the financial system's existence is mobility of capital from savers to the borrowers in the most productive and effective manner. This process can be completed through direct as well as indirect financing (Crane, 70).

Direct Financing

In this process borrowers and savers swap cash and financial instruments directly. Deficit units issue financial assertions on themselves and deal directly with surplus units. The savers contain the financial assertions as concern bearing instruments and they can sell it easily in financial markets (Allman, 55).



Indirect financing

A difficulty caused by direct financing conveyed the usage of indirect financing. Sometimes the surplus units can't delay to hold financial assertions till their maturity, thus they sell the financial instruments to a financial intermediary in exchange of their capital from them (Scott, 31).

Financial markets in US economy

New York Stock exchange

Foreign exchange market

New York stock exchange

The New York Stock Exchange presents a platform for the buyers and sellers to exchange and trade financial instruments also referred as stock. This process of exchange, buying and selling is not bound from person to person but person to organization interactions are also facilitated. New York stock exchange also facilitates the process of IPO (initial public offering) in which companies issue their shares first time in the market for the trade. On the dealing floor, the NYSE deals in a relentless auction format, where traders can execute supply transactions representing investors. They will accumulate the befitting mail, where an expert broker, who is engaged by NYSE constituent firm, actions as an auctioneer in an open market environment to facilitate interaction between purchasers and sellers, and to organize the genuine auction.

Foreign exchange market

The foreign exchange is a financial market which facilitates the process of dealings pertaining currencies. The foreign exchange market works out the ...