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    Importance of Financial Markets

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    maryani
    Financial markets play an important role by (1) providing fair treatment to all participants, (2) giving individuals, companies, and governments access to capital, and (3) helping lower unemployment. Capital allocation involves distributing a company's resources to enhance stability, value, and returns. It can occur through direct transfers of stocks/bonds, indirect transfers via investment banks, or transfers through financial intermediaries like banks and mutual funds.

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    Importance of Financial Markets

    Uploaded by

    maryani
    22 views2 pages
    Financial markets play an important role by (1) providing fair treatment to all participants, (2) giving individuals, companies, and governments access to capital, and (3) helping lower unemployment. Capital allocation involves distributing a company's resources to enhance stability, value, and returns. It can occur through direct transfers of stocks/bonds, indirect transfers via investment banks, or transfers through financial intermediaries like banks and mutual funds.

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    IMPORTANCE OF FINANCIAL MARKETS

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    Financial markets play an important role by (1) providing fair treatment to all participants, (2) giving individuals, companies, and governments access to capital, and (3) helping lower unemployment. Capital allocation involves distributing a company's resources to enhance stability, value, and returns. It can occur through direct transfers of stocks/bonds, indirect transfers via investment banks, or transfers through financial intermediaries like banks and mutual funds.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    22 views2 pages

    Importance of Financial Markets

    Uploaded by

    maryani
    Financial markets play an important role by (1) providing fair treatment to all participants, (2) giving individuals, companies, and governments access to capital, and (3) helping lower unemployment. Capital allocation involves distributing a company's resources to enhance stability, value, and returns. It can occur through direct transfers of stocks/bonds, indirect transfers via investment banks, or transfers through financial intermediaries like banks and mutual funds.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    IMPORTANCE OF FINANCIAL MARKETS 

    There are many things that financial markets make possible, including the following: ∙

    o Financial markets provide a place where participants like investors and debtors,
    regardless of their size, will receive fair and proper treatment. 
    o They provide individuals, companies, and government organizations with
    access to capital. 
    o Financial markets help lower the unemployment rate because of the many job
    opportunities it offers 

    Capital Allocation Process in the Market 

    This is the process of distributing a company's financial resources with a


    purpose of enhancing the firm's long-term financial stability and value creation—and
    providing fair returns to providers of risk capital.

    Capital allocation- decisions are made by the company's board and


    management. 

    1. Direct transfers

    occur when a business sells its stocks or bonds directly to savers. The business

    delivers the securities to savers in exchange for the capital. This process is mainly

    seen used by small firms and relatively little capital is acquired through these

    processes.  

    2. Indirect transfers through an Investment Bank (IB)

    An underwriter facilitates the issuance of securities. The business sells its

    stocks or bonds to the investment bank, which further sells these to savers or

    investors. This entails risk on the part of investment bank since they may not be

    able to resell the securities to savers for as much as it paid, and they hold the
    securities for a period of time. This transaction is called a primary market

    transaction since new securities are involved and the corporation receives the sale

    proceeds.  

    3. Indirect transfers through a Financial Intermediary

    Transfers made through a bank, an insurance company, or a mutual fund are

    examples of these. The existence of intermediaries greatly increases the efficiency

    of money and capital markets. The intermediary obtains funds from savers or

    investors in exchange for its own securities. The intermediary uses this money to

    buy and hold businesses’ securities, and the savers hold the intermediary’s

    securities. Therefore, intermediaries literally create new forms of capital such as

    certificates of deposit, which are safer and more liquid than mortgages and thus

    better for most savers to hold. 

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