Finance

Six functions of financial markets

On an individual basis, financial markets for us are only a means of earning money and returns. We never really bother or care to look beyond that – but the reality is that financial markets are the catalyst in every economy – they go way beyond than merely generating returns. So here we’ve listed six reasons which you need to know about the financial markets. Read on:

 

  1. Borrowing and liquidity:
    The financial markets are the quickest means to raise money – it can be done in a matter of a few seconds. Also, the liquidity of the financial markets, especially the money market, is really high – which makes it very easy for inter-trader transactions. Quick transfers, borrowing money can quickly happen within traders because of the system set up by financial markets.
  2. Price determination:
    The market is all about price – the best price which can be sought out after coming to the point of equilibrium of the market forces of demand and supply. To ensure that commodities are priced reasonably, the commodities market has been specially created. Here the prices of nature-oriented commodities are fixed to ensure fair trade for both traders as well as consumers.
  3. Information analysis:   
    The financial market of a country says a lot about its economic state of affairs. Plus, the collective information about the market daily is beneficial to make financial decisions not only for the country but also for companies.
  4. Boosts the market:
    Higher the amount invested in shares and other financial markets, greater the availability and movement of capital in the country. The citizens of a nation are always advised to invest more in shares, and go beyond investing in fixed income, generating fixed deposits or mere savings accounts. The more the funds invested, the greater will be the liquidity of the working and other capital in the country.
  5. Improved efficiency:                                                                                                                                                         
    As financial markets are totally paperless, this leads to efficiency in the transactions. Not only this, the transactions are quick, without the burden of any additional costs. The returns generated, too, are tax-free, which encourages people to invest more in the financial markets.
  6. Transfer of risk:
    Financial markets are a source of generating capital for many companies. In the process, the entire risk is transferred from the shoulders of those undertaking the investment to those who actually pump in their money as funds in these investments.