4.4.1: Role Of Financial Markets

Question 1

What are financial markets?

Answer 1

• Where buyers and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature

Question 2

What are the two main reasons for financial markets?

Answer 2

• To meet the demand for services, such as saving and borrowing, from individuals, businesses and the government and to allow speculation and financial gains.

Question 3

What are the role of financial markets?

Answer 3

• Facilitate savings; which allows people to transfer their spending power from the present to the future.
• Lend to businesses and individuals; which allows consumption and investment
• Facilitate the exchange of goods and services; by creating payment system. Central banks print paper money, institutions process cheque transactions, companies offer credit card services and banks
• The provide forward markets; this where firms are able to buy and sell in the future at a set price