How Financial Markets Improve Economic Efficiency (Essay Sample)

How financial markets improve economic efficiency
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How financial markets improve economic efficiency
A financial market is any marketplace where sellers and buyers participate in asset trading: currencies, equities, bonds and derivatives. Financial markets have transparent pricing, trade regulations, fees and costs. Market forces determine the price of trading securities. Financial markets instruments and institutions allow investors to specialize in a certain services or markets and diversify risks. Financial institutions financial markets contribute to economic growth. Financial markets assist to efficiently direct flow of investment and savings in an economy in ways that allows capital accumulation and production of products CITATION Hun13 \l 1033 (Hung Fung, 2013). A well-developed financial institution and markets, as well as a wide range of financial instrument and products, suits borrowers and lenders needs as well as the overall economy.
Financial markets play a vital role in capital accumulation production of products. Credit price and ROI (return on investment) provide signals to consumers and producers who are the participants of financial market. The signals help direct funds mainly from households to the businesses, governments, consumers, and investors who borrow money. Similarly, the existence of financial institutions and markets institutions facilitates international flow of funds among different countries. Efficient financial markets lower transactions and search costs in an economy by providing numerous financial products, with varying pricing structures CITATION Mas11 \l 1033 (Masahiro Kawai, 2011)
A well-developed financial system provides products to participants who offer lenders and borrowers with a solution for their needs. Governments, businesses, and individuals in need of money can discover easily the financial markets or financial institutions that may provide funds ...