Question

Why do Financial Markets & Institutions exist? What justifies their existence?

Answer 1

Financial Markets are the place at which buying and selling of securities or instruments like bonds derivatives equity etc takes place.

Financial markets are relevent because;

1. They have eminent role in economic growth of the country.
2. Channelises the amount in the hands of savers to productive investment. There by convert savers to investors
3. Connects people of excess money with people who needs additional money.

FINANCIAL MARKETS

• Stock Market- Helps to trade shares of companies
• Bond Market- helps to issue new debt,buy and sell Debts.
• Derivative Market- futures options,forward swap contracts are traded there
• FOREX market- stands for foreign exchange market where buying selling exchange and speculation of currencies takes place
• Money market- is a market for short term funds. Commercial bill. Certificate of deposit,T bill etc are the instrument s.

FINANCIAL INSTITUTIONS

• Commercial banks- accept deposits and lend business loans.
• Investment banks- provides financial services and advices hekps to issue shares
• Insurance companies- provide protection to businesses and individuals against risk of losses hy paying premiums as consideration

Financial institutions are important because they ;

1. They orovide liquidity to businesses
2. Offers credit to firms and individuals
3. Provides access to financial markets
4. Provides guidance.