International Financial Markets Essay Example | Topics and Well Written Essays - 2500 words

International Financial Markets - endeavor ExampleThey lend such surplus fund to the borrowers equivalent house look ats, businesses, governments who want to finance their personal expenditures like purchase of houses, cars and furniture. This kind of flow of funds form the lenders to the borrowers follows two ways known as right away finance and indirect finance. In the former concept the borrowers have access to the finance from the lenders directly. They do this by selling their fiscal tools which represent a claim on the potential proceeds and assets of the borrower. Financial legal instruments ar assets for individuals who buy them and are liabilities for individuals who sell them. Through this process of buying and selling of securities the flow of money is occurs in the economy which is very vital for the economy. Hence fiscal markets are the strong suit through which such proceedings happen. The pecuniary markets comprises of equity market, debt market, derivative mar ket and foreign exchange market. Each of this market acts as the medium of flow of fund in the economy. This report will analyse the importance of the financial markets and the role which they lead in the development of international trade and economic development. Discussion Financial System Structure The financial system of an economy comprises of three components Financial markets Financial institutions Financial regulators Each of the above components has a particularized role in the economy. The financial institutions are important players in the financial markets since they perform the role of an go-between and hence they determine the flow of funds. The financial regulators role is to monitor and regulate the participants of the monetary system. At the heart of this is the fiscal market. It facilitates in the flow of funds in the economy (Cho, 1989, pp. 88-92). Figure 1 Structure of Financial System The financial institutions use financial instruments to regulate the flow of funds in the economy. Financial assets or financial instruments are intangible assets that are expected to provide future benefits to the proprietor of the instrument in the form of future cash. Some financial instruments are known as securities which embarrass bonds and stocks (Fry and Maxwell, 1995, p. 282). Financial markets and their economic importance Financial market is a place where there is exchange or trading of financial instruments. The major economic functions of the financial markets are Liquidity Price discovery decline of transaction costs. Liquidity The financial markets provide an opportunity to the investors to sell their financial instruments. Liquidity means the baron of an investor to sell an asset in the market at its fair market value anytime he wants. Without this liquidity, an investor had to hold on to the financial instrument till the conditions arise to sell it or the issuer of the asset is contractually obligate to clear the obligation (Stiglitz, 1989, pp. 55-61). The liquidity of an equity instrument is until the company is liquidated voluntarily or involuntarily. For a debt instrument liquidity comes when it matures. All international financial markets provide some liquidity to the investors though they have divergent degrees of liquidity associated with it (King, Robert and Ross, 1993, pp. 717-723). Price discovery It denotes to the determination of the price of a traded asset in a financial market by means of transactions between