Wk3 Discussion Post

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Independence University *

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3030

Subject

Economics

Date

Jan 9, 2024

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docx

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Uploaded by MajorNarwhal1487

Good Morning, Class Wk4 Discussion Post Financial Markets & Their Purpose The totality of the financial markets may be broken down into its component parts, all of which are products that generate a financial return. The majority of the time, those who invest in these kinds of things are either investors or individuals who have extra money. When people or investors want more financial resources, they may borrow money from one of the sources listed above (Hayes, 2022) . There are now three different types of financial markets that may be accessed: the money market, the bond market, and the stock market. The stock market is a subdivision of the financial market that enables companies to sell their shares of stock, each reflecting a fractional ownership interest in the company. The stock market was established in the 17th century. Individuals have the potential to profit monetarily from the achievements of the company in which they have invested while at the same time assisting enterprises in the process of raising funds via the use of this strategy (Hayes, 2022) . A segment of the financial market known as the bond market acts as a facilitator for companies borrowing cash from members of the general public. This purpose might be accomplished by using a procedure known as issuing a bond or a certificate of indebtedness, both of which detail the terms and circumstances that apply to the borrower. This certificate, which contains a promise to interest payments and the repayment of the sum "borrowed," is given to the person who obtains the bond and a reward for that individual. The money market is a financial mechanism that facilitates the buying, selling, and other transactions involving assets with a short-term holding period. The returns, on the other hand, are not very significant in any way, and this can be directly attributed to the fact that these specific markets have a high level of safety (Hayes, 2022) . It is feasible for transactions to take place on both the wholesale and retail levels within the framework provided by the money markets. In wholesale transactions, various institutions and dealers are frequently involved, whereas individual customers make purchases in retail transactions. Wholesale transactions include more significant quantities of goods than retail transactions. Wholesale trade is increasingly prevalent.

Financial Intermediaries & Their Functions The term "financial intermediary" refers to any entity within the financial sector that acts as a go-between for savers and borrowers to facilitate funds transfer (Chen, 2022) . The financial institution is meant to be seen as the "intermediary" in the context of the concept of a financial intermediary. This is because the financial institution acts as a hub for those who have money and others who require money to interact with one another. It is generally accepted that the basic types of organizations that fulfill the role of financial intermediaries are banking institutions and mutual fund companies. Financial institutions like banks are the most common and well-known intermediaries that provide deposit accounts. The funds deposited into these accounts are made available for lending to persons who need financial help to meet their needs. Account holders can earn interest on their deposits since the interest rate on lent money is often higher than the rate paid on deposits (Chen, 2022) . In other words, the interest rate on borrowed money is typically higher than the rate paid on deposits. This contributes to the reimbursement of operational expenses and results in a profit for the bank's shareholders. In addition, account holders have access to several ways of exchange, like checks and debit cards, which may be used to withdraw cash from the account. These methods can be used to withdraw money from the account. The revenues from the sale of mutual fund shares to the general public are then invested in a diverse portfolio of stocks and bonds. Other sponsoring businesses include hedge funds, private equity, and equity investments. Investors in a mutual fund take on all of the possible financial risks as well as any potential benefits (Chen, 2022) . This indicates that the shareholders will make a profit if the value of the fund increases, but they will incur a loss if the value of the fund decreases. People with little means can diversify their assets, lower their risk, and improve the possibility that their investments will increase by having access to money managers through mutual funds, which provide these advantages. This strategy is accessible to people with little financial resources. Federal Government Budget Deficit & Its Effect on the U.S. Economy

Because the federal government spends more money than it brings in through tax revenue, there is a deficit in the budget. It is widely held belief that governments all around the globe adhere to this particular approach as their standard operating procedure. The government closes the gap between the amount of money it receives in income and the amount it spends by taking out loans, which ultimately increases the overall amount that the country owes (Hayes, 2022) . An economy that has been expanding at a sluggish rate might be given a much-needed boost by increasing the amount of money made available to the general population so that individuals can make additional purchases and investments. Although this may be a beneficial path for the economy, carrying a long-term deficit can generate economic instability and limit economic development in the long run. This is true even if the economy may benefit from this road in the long run. Risk Averse and How to Deal with Risk When a person conducts their life in such a manner that there is a lot of unpredictability in their lives since they fear bad things happening to them, it is stated that they have a risk-averse attitude. Using different instruments of protection, such as insurance, can help reduce the anxiety caused by the presence of potential threats (Mankiw, 2020) . Insurance policies such as health insurance, auto insurance, homeowner's insurance, and life insurance fall under this category. By charging customers a small fee that will cover all or part of the risk, such as an automobile accident, a house fire, a chronic illness, or death, the insurance company takes on the risks that are associated with particular markets, such as the healthcare industry, the auto industry, the real estate industry, and the life market. These markets include the life market, the real estate market, and the auto industry. The Worth of a Dollar Today versus Yesterday and the Significance to the Economy This example will help you understand a dollar's value: The same site offers $50 now or $50 in five years. If given a choice, the person should take the $50 now and deposit it in an account to grow over the following five years (Fernando, 2022) . The person should take the $50 today. Money's worth has increased in recent years because it can earn more now than in the future. To calculate the present value of future earnings, determine how much money must be

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