Role of Financial Markets

Question 1

How many roles does the financial market have?

Answer 1

5

Question 2

State the roles of the financial market

Answer 2

1) To facilitate saving
2) To lend to businesses and individuals
3) To facilitate exchange
4) To provide forward (future) markets in currencies 💴 and commodities
5) To provide a market for equities

Question 3

How does the financial market facilitate saving?

Answer 3

Banks 🏦 and other financial institutions e.g. insurance companies, pension funds etc provide facilities for individuals and firms to save- allowing purchase of 🚘 at a later date

Question 4

How does the financial market allow lending to businesses and individuals?

Answer 4

Banks 🏦 and other financial institutions provide credit- cash 💵 flow problems occur for individuals and firms without it

Question 5

How does the financial market facilitate exchange?

Answer 5

Fully developed banking and financial system allows transfers of 💵 easily
Online banking 💻 allows transfers to be made electronically- even easier

Question 6

How does the financial market provide forward (future) markets in currencies and commodities?

Answer 6

Allows traders to buy in advance … ⬇️ risk associated with price volatility (changing- especially the case with commodities and currencies 💴)

Question 7

How does the financial market provide a market for equities?

Answer 7

Stock exchanges- allow stocks and shares to be traded

• allows firms to raise money 💵
• provides opportunity for investors to purchase shares