Assignment Content

Research how financial markets and institutions influence the US and global economies.

Create a summary to present your research.

Choose 4 financial markets or institutions. Briefly explain what each specializes in (mortgages, stocks, government securities, etc.).

Compare how each financial market you identified influences the US economy and global economy.

Cite references to support your assignment.

Format your citations according to APA guidelines.

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Stock Markets and the Global Economies

Although financial markets, typically stock markets, are unpredictable, most economic experts agree that their main goal is to help Main Street. Accordingly, there is a significant connection between financial markets and the economy. For instance, stock markets ease business operations and bolster trading activities for capitalist economies. Indirectly, these markets favor capital accumulation and the production of goods and services by facilitating the flow of savings and investments. Financial markets are the largest in the world due to huge volumes of money and capital. This essay provides research on financial markets and institutions’ influence on the U.S and global economy.

Financial Markets and Institutions

Stock markets are places where public listed companies’ shares and securities are traded. Notably, a stock can only be bought or sold if listed on an exchange. A country’s growth, efficiency, and development are primarily impacted by a well-established and smoothly operated financial market. According to Karagiannis & Kvedars (2016), increased economic development improves resource allocation and creates business liquidity. Further, it eases financial holdings’ trading for buyers and sellers. The robust positive relationship between financial markets and economic growth allows capital accumulation and the production of goods and services (Al Nasser & Hajilee, 2016). There are various types of financial markets, namely, commodities market, forex market, stock market, derivative market, and bond market.

On the other hand, financial institutions refer to companies that engage in economic and monetary transactions, namely, currency exchange, loans, deposits, and investments. Typically, financial institutions are also referred to as banking institutions. Financial institutions can be categorized into Central banks, Internet banks, Retails and Commercial banks, Credit unions, Savings and Loan Associations, Brokerage firms, and Insurance companies.

Influence on U.S and Global Economies

Financial markets’ influence on the U.S and the global economy is primarily derived from functions performed by these markets. Bekiros et al. (2018) state that stock markets play a significant role in price discovery for different financial instruments through the demand and supply market forces. Consequently, this affects the economy since consumers buy less when prices are high and buy more when prices are low. The demand and supply curve illustrates this economic movement. Conferring to Al Nasser & Hajilee (2016), financial markets’ liquidity function allows investors to sell assets or security without affecting its market price. Liquidity positively impacts the economy since short-term crisis can be handled by converting financial instruments into cash at a fair prevailing market price.

Additionally, liquidity improves the financial well-being of financial institutions, affecting their growth and development. Alternatively, enhanced financial institutions’ growth and development provide liquidity to the economy and allow higher economic activity levels (Bekiros et al., 2018). Financial markets and institutions contribute to capital formation by providing a new savings channel for investors to enter another country. In return, this creates employment opportunities and raises revenue for the government, positively affecting economic growth. Another recent financial markets’ contribution to the economy is the large employment pool created by the forex market. Forex trading impacts the economy by determining the demand for a particular currency. When a country’s currency value increases, it bolsters demand attracting more consumers to invest in the currency.

Conclusion

On balance, financial markets and institutions dramatically influence the U.S and global economic growth. The positive connection between stock markets and economic growth makes the financial market the largest globally due to large volumes of money and capital traded. A well-established and efficiently operated financial market increases resource allocation and creates business liquidity for business and entrepreneurs. Banking services increase economic activities by pooling risk among consumers, offering credit, and managing markets. Capital accumulation and production of goods and services fostered by stock markets allow countries to improve their economy by availing critical goods and services. Stock markets are a device to transform money from the impatient to the patient.

References

Al Nasser, O. M., & Hajilee, M. (2016). Integration of emerging stock markets with global stock markets. Research in International Business and Finance36, 1-12.

Bekiros, S., Shahzad, S. J. H., Arreola-Hernandez, J., & Rehman, M. U. (2018). Directional predictability and time-varying spillovers between stock markets and economic cycles. Economic modelling69, 301-312.

Karagiannis, S., & Kvedars, V. (2016). Financial development and economic growth. A European Perspective, JRC Science for Policy Report.