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Submission date: 25-Mar-2020 09:24PM (UTC-0500)
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Markets done
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Markets done
by K Hoods
Markets done
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FINANCIAL MARKETS INFLUENCE ON THE US AND GLOBAL ECONOMIES 4
Financial markets and institutions influence the US and global economies
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The financial markets and institutions play a great role in the US and global economies. A market provides a platform where buyers and sellers can interact. Most markets are established and run through various rules and regulations usually provided through a governing body. Financial markets are markets that are used to raise various types of capital. I will discuss four different types of financial markets and compare their impact on the US economy as well as global economy.
Stock markets
Stock markets help create capital through issuing of shares. The markets also provide an opportunity for trading the shares there after. A good example of this type of market is the New York Stock Markey. The economy of the US as well as global economies are directly affected by events in the stock market. For example, when there is a crash will definitely impact in a negative way, the gross domestic product (DeLarosiere & Nielsen, 2017). This is because a crash will affect directly personal consumption and business investment which a key components of the gross domestic product.
Derivatives Markets
This is a key tool that provides very valuable information used in ensuring that certain financial risks ae well controlled and kept within limits. Derivatives are simply contracts that obtain their value from certain existing assets and securities. Banks as well as other non-financial institutions use derivatives to make decisions and this has an indirect impact on the US economy. In the short run, the US economy as well as other economies like those of Japan and India, will be affected positively by derivatives markets (Gurrib, 2018). However, in the long run, the effect will not be felt. The effect in the short run id important in ensuring stability.
Bond Market
Bond markets are key sources of finances that can be used to fund projects by the government. This therefore means that bonds can be used to uplift the economy by ensuring that government projects do not stall over lack of finances. According to Gilchrist, Yue & Zakrajšek, 2019, through ensuring that governments can obtain finances to fund projects, the bond market has a direct positive impact on the economy.
Commodities markets
These are markets where there is exchange of real goods and services. Examples of commodities include gold and corn. This kind of market is mostly associated with the selling and buying of raw materials which are classified as soft and hard. Soft materials include; agricultural products while hard products include natural resources like minerals. Commodities experience changes in prices which in turn influences stock market prices (DeLarosiere & Nielsen, 2017). This will ultimately have an effect on other costs like operational costs of big corporations which definitely affect the economic performance. This is because the economy of any nation is based on commodities as building blocks.
References
DeLarosiere, J. J. H., & Nielsen, S. (2017). Information Uncertainty and Volatility in
Financial Stock Markets: Commodity Price Fluctuations and Business Cycles. In Value Relevance of Accounting Information in Capital Markets (pp. 207-219). IGI Global.
Gilchrist, S., Yue, V., & Zakrajšek, E. (2019). US monetary policy and international bond
markets. Journal of Money, Credit and Banking, 51, 127-161.
Gurrib, I. (2018). Are key market players in currency derivatives markets affecte financial
conditions?. Investment Management and Financial Innovations, 15(2), 183-193.
