Explain the Main Reasons Why Financial Markets and Financial Intermediaries Exist.

Introduction to the Financial System Financial Instruments Financial instruments can be: • Equity This is usually through the selling of common shares and/or common stock. It gives the buyer some ownership of the firm and thus, voting power when it comes to electing the board of directors. Debt This is money that is borrowed from someone else. Debt must be repaid at set intervals. Debt can be divided into short and long-term debt. This should follow the matching principle where short-term assets should be funded with short-term debt.

The conveyance of a noncash financial asset to someone other than the issuer of that financial asset. The following include transfers: selling a receivable, putting a receivable into securitization trust, and receivable as collateral.

The other financial intermediaries include insurance companies, mutual funds and pension funds. In Japan, banks provide more financing than other financial intermediaries do. In the U.K., other financial intermediaries provide substantially more financing. In the U.S., banks are less important sources of financing compared to financial intermediaries. While in Europe, financing provided by banks and financing provided by other financial intermediaries are approximately equal.

| The hypothesis that market prices reflect all publicly available information is called efficiency in the:Answer

They gather all the small amount of savings to help firms and governments for investment, it also allows consumers optimal investment point to trade with lend or borrow, so that they may obtain points outside of the investment opportunity frontier that would be unobtainable because they would be straggle on the higher prices (lend or borrow) level if they invested efficiently by themselves.

Financial markets are crucial to promoting greater economic efficiency by channeling funds from people who do not have a productive use for them to those who do. Well functioning financial markets are a key factor in producing high economic growth, and poorly performing financial markets, vice versa. Financial markets and intermediaries have the basic function of getting people together by moving funds from those who have a surplus of funds to those who have a shortage of funds.

So, it is mostly similar with the finance from the bank, but instead of borrowing one greater sum of money from one bank can be borrowed lesser sums of money from multiple individuals.

A: Most investments in the economy would fail to take place if there were no financial institutions because many independent investors do not like to take large amounts of risk. By utilizing financial intermediaries, which are “organizations that receive funds from savers and channel them to investors,” people are given peace of mind in knowing that their source of money/investing is more stable and accounted for. Those who apply this principle also value the liquidity, or convertibility, that financial institutions provide in the case of emergency or cold feet.

　　 paper will encompass the importance of the U.S stock market/stock exchange versus the Chinese stock market/ stock exchange, with a brief introduction about how each stock market/stock exchange came into existence, the importance of each stock market/stock exchange, how the U.S and Chinese manage their stock markets/stock exchange, how corporations are appointed plus the rules and regulations. This will also entail random facts about each stock market/stock exchange. Stock markets are like hitting a royal flush, if the price of your stocks goes up, you win; if it drops, you lose! The stock market, also known as the equity market, is one in which shares are owned by companies and their shareholders. The companies that are on the stock

These are national or regional financial institution designed to provide medium- and long-term capital for productive investment, often accompanied by technical assistance, in poor countries.

In the financial markets, the most common forms of marketable securities are stocks and bonds. Though they have some similarities to each other, they differ greatly in many aspects. Broadly speaking, both financial instruments enable one to invest in corporations, public and/or private, with possible profitable returns in the future.

The theory of financial intermediation analyses the role of financial intermediaries in the economy and is associated with the following three key facts; information problem, transaction costs and regulation. This theory was started by (Gurley and Shaw, 1960). It is based chiefly on information asymmetry and agency theory.

The Flow of Fund- the financial system allows the flow of funds from surplus spending units (SSU’s) to deficit spending units (DSU’s). Providers of funds (SSU) receive a financial instrument (which stipulates the terms of the deal – i.e. amount lent, stream of future income, maturity date, etc.) issued either by the receiver of the funds (DSU) or by a financial intermediary.

A well functioning financial system is necessary for enhancing the efficiency of intermediation, which is achieved by mobilizing domestic savings, channeling them into productive investment by identifying and funding good business opportunities, reducing information, transaction, and monitoring costs and facilitating the diversification of risk. This results in efficient allocation of resources, contributing to a more rapid accumulation of physical and human capital, and faster technological progress, which in turn lead to higher economic growth. Anxious to

Financial systems and financial regulators are entities setup by the government of a country to ensure the availability and flow of financial resources in a fair and lawful manner without exploitation or monopolization of the resource by individuals or organizations. The task of ensuring the availability of finance and its transference is taken up by the financial systems of a country while the task of monitoring and regulating is taken up by the financial regulator.