Question

How do financial markets impact our personal lives? And how do they impact business?

Answer 1

Financial markets have primarily 5 components i,e. Equity, debt, mortgage, foreign exchange & derivatives.

Personal lives

At a personal level, everyone may not be using derivative products but they are exposed to the other 4 components. Ever increasing popularity of equity (mostly MFs) impacts one's personal investment decisions. Almost evryone is exposed to the debt instruments - be it a home loan, vehicle loan or study loan. Many of us are also exposed to mortgage products which serve the purpose of having liquidity (funds). Whenever we travel aborad, we get exposed to foreign exchange products driven by exchange rates. Hence, almost all of us are personally exposed to financial markets.

Business

This predominantly depends on which business are you in - just to gauge the extent to which financial markets affect your business. If your business in wallstreet then your're entirely into the business of financial markets, any minor change in the market movement is bound to have impact on your business. However, other than that every business through some or the other way is connected to financial markets. Right from their source funding strategy to their investing strategy. Now, this may not be the core part of every business but it's an integral one & it has multifold effects whenever there's change in these markets. e.g cost of debt goes higher then the business would have to think twice beofre raising funds through debt or the extent to which it wants to have the debt. International business nowadays use derivative products comprehensively along with of course the forex products in order to mitigate the exchange rate risk. Similarly, there are many examples which show the significance of financial marlets in business.