Question

Show how the presence of financial markets and institutions allow financial managers to select assets without concern for their shareholders’ preferred consumption pattern.

Answer 1

- Yes this is true, presence of financial markets and institutions allow financial managers to select assets without concern for their shareholders’ preferred consumption pattern

- Today financial managers have opportunity to select a variety of instruments for investments from Equities , Bonds , Commodities , Derivatives , Futures , Options , Currency based instruments and not only in their home market but in global market across the world.

- Also shareholders are mainly concerned with the risk , to mitigate that also today financial managers can hedge their risk with the help of various derivative instruments.

- Financial markets assume a basic part in the aggregation of capital and the creation of goods and services. The cost of credit and quantifiable profits give signs to makers and buyers—financial market members.

- Those signs help direct assets (from savers, principally families and organizations) to the buyers, organizations, governments, and investors that might want to borrow cash by interfacing the individuals who esteem the assets most exceptionally (i.e., are eager to follow through on a greater expense, or interest rate), to willing lenders. Along these lines, the presence of vigorous financial markets and organizations likewise encourages the worldwide progression of assets between nations.

- Also, effective financial markets and establishments will in general lower search and exchanges costs in the economy. By giving an enormous cluster of financial items, with fluctuating danger and evaluating structures just as development, a very much created financial framework offers items to members that furnish borrowers and lenders with a nearby counterpart for their necessities.

- People, organizations, and governments needing assets can without much of a stretch find which financial establishments or which financial markets may give subsidizing and what the cost will be for the borrower. This permits investors to contrast the expense of financing with their normal rate of profitability, along these lines settling on the speculation decision that best suits their requirements. Along these lines, financial markets direct the assignment of credit all through the economy—and encourage the creation of goods and services.