Eco 553 Chapter 1

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4) Why are financial markets important to the health of the economy?

A financial market is a market where people and organization can trade financial securities and commodities at prices according to the supply and demand. Example of securities are stocks and bonds, and commodities include properties or valuable assets. A market holds interested buyers and sellers, including households, firms, and government agencies, in one place. Financial markets helps the raising of capital, the transfer of risk, determination of price, global transactions with integration of financial markets, the transfer of liquidity, and for international trade purposes. One of the important catalyst for the accelerated development of an economy is the existence of a dynamic financial market. A financial market helps the economy in the following manner. Firstly, mobilization of savings of the public. Funds obtained from the savers such as household individuals, business firms, public and government is used for investment to obtain profit that helps generates to the economic growth. Next is for national growth. A financial market contributed to a nations growth by ensuring flow of surplus funds to deficit units. Flow of funds for productive purposed is also made possible. Thirdly is for entrepreneurship growth. this is because financial market contribute to the development of the entrepreneurial sector by making available the necessary financial resources. Fourth is liquidity. Financial markets are important because they allow economic growth by offering liquidity, and this liquidity allows markets to get bigger because it allows demand to be expressed very fluidly and without a very large capital gain. Without this liquidity markets would be very still and economic growth would be very slow as demand would take a very long time to be expressed. Lastly is for industrial development: The different components of financial markets help an accelerated growth of industrial and economic development of a country, thus contributing to raising the standard of living and the society of well-being.

8) Can you think of any financial innovation in the past ten years that have affected you personally? Has it made you better off or worse off? Why?

Financial innovation refers to the creating and marketing of new types of securities or financial services. Derivatives, credit swaps, hedging, futures contracts are examples of financial innovation. Too often financial innovations arise not to help people, but to cater to their worst excesses of greed or fear. One financial innovation that have affected me personally is online-banking services. Online-banking is for worry-free, hassle-free banking services for the consumers. Firstly, I can pay my bills online and access a record of my checking account transactions online. Online banking is a great feature, and most banks do offer it. It is an easy way of payment. Bill payments can also be handled properly and smartly. Instead of waiting for certain due dates, I can easily pay all my transactions using my computer and in coordination with my bank. Secondly, it is very convenient. Online banking is a totally easy thing to do. In the comfort of my home or offices, I can do whatever monetary transactions I wish to do with my bank. Thirdly, unlimited service day and night. The services and various features of my bank are always available seven days a week and 24 hours daily. The most interesting thing here is that, everything with just one click of the mouse. Next, there is no time constraint. Online banking is also stress free because it never closes unlike the traditional banking that has cut-off time. Lastly, online banking also allows me to transfer money between accounts much more quickly. It is more convenient than using the automated phone service, and can save me a trip to the bank. There are many more benefits I gained from this financial innovation....
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