Financial Markets Are Backbone Of An Economy

It is interesting to see how many forms of financing can bring a major change in the economy. Talking about these financing methods at play in markets, there are a couple of them that are worth mentioning. For instance, the technique of direct financing is on a rise ostensibly due to an ease in getting finances. Under this method, a borrower normally goes directly to an interested investor to borrow necessary funds. Similarly, there is another method of indirect financing where a middleman or an intermediary plays crucial role.

It is a middleman or the so-called intermediary which plays the vital role of providing necessary funds. They ensure safe flow of the savings of small-time savers to numerous financial institutions. These institutions then route this fund to borrowers.

The role played by financial markets in macroeconomics is significant. It is no wonder that operation and health of an economy is generally affected by numerous components. These are the components that have a bearing in price exchange rate sand distribution of income and wealth. Experts of this field are of the view that it is these components that can have both, adverse as well as favorable, affects in the economic growth.

They contend that, in order to witness an economic system function appropriately, the chain of this flow of money is very important. In other words, it must be ensured that individuals who have large amount of savings with them (the savers) must properly be directed towards those who are in need of this savings ( the borrowers).

Today, globalization of different types of markets can easily be characterized by applying many scales and dynamics. This is especially true with financial markets that are often seen reeling under huge stimulation cause by massive movement of capital that is effectively being transferred worldwide. The increase in number of intermediary institutions namely investment funds is testimony to this fact.

Now that technology has started to play a bigger role in such transfer, many new types of financial instruments and electronic money has come into the picture. On most occasions, these operations are being played fairly autonomic way.

As a result, they are mostly independent from their real sphere. Inter-relatedness coupled with relatively independent nature of these transactions has caused a ‘domino’ effect in worldwide financial system. High sensitiveness of local market factors often goes to contribute to this risk of ‘domino’ effective.
Taken From (http://www.articlesxpert.com/business/financial-markets-are-backbone-economy.htm)