Th4.4: Role of the Financial Market

Question 1

What are the five roles of the financial market?

Answer 1

facilitate savings
lend to businesses and individuals 
facilitate the exchange of goods and services
provide forward markets
market for equities

Question 2

Facilitate savings

Answer 2

allows people to transfer their spending power from the present to the future - can be done through a range of assets, such as storing money in savings account and holding stocks and shares

Question 3

Lend to businesses and individuals

Answer 3

allows consumption and investment - sometimes referred to as a financial intermediary, the step between taking money from one person to give to another since money from savings is used for investment

Question 4

Facilitate the exchange of goods and services

Answer 4

by creating a payment system. central banks print paper money, institutions process cheque transactions, companies offer credit card services and banks and bureau de changes buy and sell money

Question 5

Provide forward markets

Answer 5

where firms are able to buy and sell in the future at a set price - forward market exists for commodities and in foreign exchange and helps to provide stability

Question 6

Market for equities

Answer 6

company’s shares. issuing shares is an important way for companies to finance expansion but people would be unlikely to buy shares if they were unable to sell them on in the future