Question

What is a financial market? What is a financial institution? Why are they so important? Would you let one or many financial institutions fail?

Answer 1

A financial market is a market for the buying, selling and exchange of financial assets, securities and instruments such as shares, bonds, derivatives etc.

A financial institution is an intermediary or institution that facilitates the functioning of financial markets by providing various services such as brokerage, lending, custodianship, trustee etc.

Financial markets and institutions are important because well-functioning and efficient financial markets and institutions are essential for modern, complex, global economies. Efficient financial markets ensure free flow of capital, transparency, lower costs, and better access to capital for businesses and financial systems.

Financial institutions may fail due to many reasons. Although the failure of one institution can be allowed to happen, the failure of many financial institutions can be a chaotic situation for the entire financial system. Instead of allowing them to fail, it may be better to keep them from failing by restructuring/stake sale so that the financial system is not compromised.