Financial Market Influence on US and Global Economies

Financial Market Influence on US and Global Economies

Brealey et al. (2020) posit that financial markets and institutions can be defined in several ways. Financial markets and institutions are markets where derivatives and securities can be exchanged at minimal transaction costs. Some companies take part in the transaction of the monetary and economic elements. For a well-establishment of financial markets and institutions, some conditions need to be met. One is a need to have a direct flow of investments and savings in both the United States and the global economies. The second condition is to effectively facilitate products and capital accumulation in both the US and the international markets (Barth and Landsman, 2010). Four financial markets have been selected for the assignment. They include the stock market, bonds, forex, and the derivative market. The aim is to establish the influence that the four selected markets have on the US and global economies.

The stock market specializes in the exchange and trading of stock, corporate bonds, currencies, and other financial securities. According to Brealey et al. (2020), the stock market’s influence on the US and global economies are two. The first is providing opportunities for small investors to invest in the economy. The is neglect among the SMEs and their contribution to the economy. Stock makes it easy to realize the assistance of small investors towards the growth of the economy. The second influence is to grant the investors the ability to deal with inflation, which is the main challenge in the global economies.

The bond market mainly deals with the exchange of trading debt securities. They include mortgages, treasury bills, and bonds. The influence that the bond market has on the US and global economies is on creating interest rates (Brealey et al., 2020). The rates mainly affect the level of liquidity, which will affect other activities. For instance, there will be an influence on the business’s expansion, government expenditure, loaning, and credits to the customers.

The Forex market deals with the trading of currency simultaneously. It is considered the largest foreign exchange swap in which two foreign entities can borrow money from each other. The borrowing takes place at a spot rate, which might be affected by inflation. There are three main ways the forex market influences the US and global economies (Brealey et al., 2020). One is through the facilitation of international trade. Countries are in a position to take advantage of the forex market to exchange their currencies for trade. Another influence is on the speculation of price movement. The last impact is seen through the adjustment of the currency rates on a long-term basis.

The derivative market deals with the exchange of financial instruments, including financial derivatives and various underlying assets. Some of the mechanisms that are traded in the derivative markets include swaps, options, forwards, and futures. The derivative markets have two main influences on the US and global economies. One of the influences is by assisting the economic agents in navigating the risks they are willing to undertake (Dechow, Myers and Shakespeare, 2010). Another contribution is that it helps the money multiplier and increases the level of participation of the investors.

In conclusion, financial markets that are well-developed at the US and global levels effectively ensure liquidity flow. Also, they increase the level of investor participation. The prominent role is to suit the key participants’ needs, such as the lender and borrowers. In general, there has been an escalation in trading activities in both the US and global economies.

References

Barth, M. E., & Landsman, W. R. (2010). How did Financial Reporting Contribute to the Financial Crisis? European Accounting Review, 19(3), 399-423.

Brealey, R, Myers, S. & Marcus, A. (2020). Fundamentals of Corporate Finance (10^th ed). McGraw-Hill Education: New York, NY.

Dechow, P. M., Myers, L. A., & Shakespeare, C. (2010). Fair value accounting and gains from asset securitizations: A convenient earnings management tool with compensation side benefits. Journal of Accounting and Economics, 49(1-2), 2-25.

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Financial Market Influence on US and Global Economies

Research how financial markets and institutions influence the US and global economies.
Create a 350- to 575-word summary to present your research.

Choose 4 financial markets or institutions. Briefly explain what each specializes in (mortgages, stocks, government securities, etc.).

Compare how each financial market you identified influences the US economy and the global economy.

Cite references to support your assignment.

Format your citations according to APA guidelines.