Question

Why are financial institutions and markets' governance, regulations, and risk, so important?

Answer 1

Financial Institutions are important they act intermediary for various financial transactions like- fund transfer,share transfer etc. Sometime they act as lender of loan for corporate and individuals who need this for statup, business expansion etc. They give platform to buy/sell securities in primary and secondary market. They act as guaranter/intermediary for various financial contract. So, in various way financial institutions are very important.

Market governance/regulation is very important because there can be many illegal financing activity like terrorist financing, money laundering, insider trading etc. which can be harmful to individual or society or nations. This are generally carried out by government entity. Market governance takes care all of this so that all transaction are done fairly and should affect innocents. That's why market governance is very important.

Risk is most important factor in financial market. Without assessing risk, your investment is at god's hand. Say, you are very interested to invest in a junk bond which is giving 20% p.a. However, the company can actually default and you can loose all your money. This is applicable for all types of financial security. A low interest paying T-bill with (AAA rated) has least risk and your money is much safer than high interest paying junk bond. So, risk is very important.