4.4.1 - Role Of Financial Markets

Question 1

What Are The Roles Of Financial Markets?
(5 Points)

Answer 1

~ Facilitate saving.

~ Lend to businesses and individuals.

~ Facilitate the exchange of goods and services.

~ Provide forward markets.

~ Provide a market for equities.

Question 2

Describe ‘Facilitate Saving’ As A Role Of Financial Markets
(2 Points)

Answer 2

~ Storing money for future use.

~ Provides money for financial institutions to lend.

Question 3

Describe ‘Lending’ As A Role Of Financial Markets
(2 Points)

Answer 3

~ Allows consumption and investment.

~ Allows for economic growth and development to occur.

Question 4

Describe ‘Facilitate Exchange Of Goods & Services’ As A Role Of Financial Markets
(2 Points)

Answer 4

~ Makes it easier for individuals and firms to trade.

~ They provide a means for money to flow between parties.

Question 5

Describe ‘Provide Forward Markets’ As A Role Of Financial Markets
(3 Points)

Answer 5

~ Useful for commodities and currencies, due to price instability.

~ Hard for individual firms, to agree forward contracts.

~ Financial markets, provide a market for these forwards.

Question 6

What Are Forwards?

Answer 6

Agreement, that guarantee that a trade happens at a later date and at a certain price.

Question 7

Describe ‘Provide A Market For Equities’ As A Role Of Financial Markets
(3 Points)

Answer 7

~ Equities = Shares in public companies.

~ Issuing shares is costly for a firm and an important way to raise finance for expansion.

~ Financial markets, allow for shares to be sold in the future.