16-Role of Financial Market

Question 1

Define Financial Market

Answer 1

Financial Market refers to any Marketplace where Financial Instruments are Traded

Question 2

State the Role of Financial Market

Answer 2

–> To Facilitate Saving
–> To make Funds Available for Business and Individuals
–> To Facilitate the Exchange of Goods
–> To Provide Forward Markets in Commodities and Currencies
–> To Provide a market for Equities

Question 3

Elaborate the Role of Financial Market
–> To Facilitate Saving

Answer 3

It Enables households or business to SAVE MONEY by providing RANGE OF ACCOUNTS with varying RATE OF INTEREST
- Consumers can save for Future Purchases of Consumer goods or emergencies
- Producer can save for Future Purchase of Capital Goods or to Support them in Cashflow Problems

Question 4

Elaborate the Role of Financial Market
–> To make Funds Available for Business and Individuals

Answer 4

They have the FUNDS that they LEND to Consumers and Firms
Consumers will have HIGHER LIVING STANDARDS as they are able to Borrow and Consume more Consumer Goods now and Pay for it in the Future

Question 5

Elaborate the Role of Financial Market
–> To Facilitate the Exchange of Goods

Answer 5

They play a vital role in creating PAYMENT SYSTEM for goods. They offer services Such as DEBIT or CREDIT CARDS process CHEQUE Transaction, Carry out ELECTRONIC PAYMENTS and FUND TRANSFER
Without them Facilitating the Exchange of Goods, consumers would require to Hold Large Amount of Cash which would be Difficult and Expensive, this would also make Online Purchase Difficult

Question 6

Elaborate the Role of Financial Market
–> To Provide Forward Markets in Commodities and Currencies

Answer 6

A Forward contract involves Buying or Selling an Asset with an AGREED PRICE TODAY, but a Delivery and Payment in the Future
They Facilitate Forward Market Contracts to Protect Business from the risk of Adverse/Risky Price movements of an Asset or the Exchange Rate
With commodity prices being Volatile, this helps to create stability by having a predictable price thus making planning easier for both consumer and producer

Question 7

Elaborate the Role of Financial Market
–> To Provide a market for Equities

Answer 7

Equities/Stock Market is where Shares are Issued and Traded
It enables Firms to raise finance by selling shares that helps business to Expand by Spending on Capital goods
A Stock Market enables an individual to invest in business to earn Dividends and to Buy and Sell Shares to Make Profits