Financial market is important for Savers and Borrowers
|✅ Paper Type: Free Essay||✅ Subject: Finance|
|✅ Wordcount: 1479 words||✅ Published: 1st Jan 2015|
What is financial markets and why it is important for savers and borrowers? Financial market is a system that includes an individuals and institutions, and procedures that together borrowers and savers and it is no matter where is the location between the savers and borrowers. The main role for financial market is to facilitate the funds from the individuals and business that have the majority fund to individuals, business, and governments to fulfill their needs of income. Financial institution is a process that used by organization which providing various types of financial services to their customers. The government authorities has controlled and supervised the institution according to the rules and regulations. Financial institution is giving different type of economic ideas for an organization to carry out their business. Financial institution is an establishment that gives as the financial services. Financial institution based on bank, credit unions, asset management firms and more. They are responsible for distributing of the financial resources in a planned way to the potential users. Financial institution can be categorized as Deposit Taking Institutions, Investment Institutions, Pension Providing Institution, Risk Management Institution and more. Financial markets have five type markets their money market, capital market, debt market, equity market and derivative market. Money market is the market that maturities less than one year and provide liquidity to the market place. Capital market is transfer income to the future year, for example home mortgages. Debt market is an financial market for give loans. Equity market is identifying the financial market in which corporate stock are traded. Derivative market is a market the right to sell in the future at a price set today. Their three different ways for transferring capital or fund from savers to borrowers in the financial market their direct transfer of, investment banking house and indirect transfer (financial intermediaries). This three different way of transferring are taking a major part in the business environment know days for increase the capital of a business or governments to do their project and they will improve their economy of their country.
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Direct transfer is one of the ways of transferring capital from saver to borrower in the financial market. Direct transfer takes place when an organization sells their goods or bond directly to the savers without going through any other ways of financial institutions. The business gives their securities to the savers and the savers who getting the securities must give the money to the business when the business need. The diagram below is showing the direct transfers process.
Direct transfer is giving the borrowers a direct way to get their saver to capital their money in to the borrowers business. In this direct transfer the savers don’t have any interrogation from investment banking house or financial intermediaries when they investing their money in to the borrowers business. For an example an organization is willing to start up a new product in their productivity and they don’t have much capital to start up the new productivity so the organization will ask the investors or savers to give some funds to start up their new productivity and after they produce their product and they will sail the product. After that they will give the amount that was given by the he savers with the dividend from the profit that the borrower earns according to how much the saver capital in the business. An advantage for direct transfer is the dialing and the transaction will be known by the borrower and the saver. They don’t have any interrogation from investment banking house or financial intermediaries so the borrower can get more capital from the saver and for saver he will get more dividend after the borrower gain his profit. The disadvantage for direct transfer is if the borrower is get the money from the saver and the business was faller the saver won’t get any money from the borrower because the business is in lost. Or other disadvantage is if the saver gives the money to the borrower and the borrower tack the money and he can cheat the saver. The saver can’t get any help from other authorities because they do direct transfer.
Investment Banking House is also another way of transferring capital or found from savers to borrower in the financial market. Investment Banking House is underwrite and distributing a new investment security and help the business obtain financial by an organization. The issuance of securities will middleman and facilitates by the underwriter saver. The organization will sells the stock or the bond that they have to the investment bank and the investment bank will sells the same securities to the savers. The diagram below is showing the investment banking house process.
Investment banking house is giving the opportunity to the saver to identify which investment is better for them to gain benefits and for borrowers they don’t need to worry about finding their saver because the investment banking house will give the investor or saver to the borrower to invest capital to do their business. After the business got the profit the borrower will give the money to the investment banking house and they will give the money to the savers by adding the dividend. And for the investment banking house they will get their income from the both borrower and saver because they are the medal person how identify and give the good borrower for saver and a good saver for the borrower. The advantage for investment banking house is they will identify a good borrower for the saver to invest and they also have more than one investment plane for the savers. For borrowers they don’t need to worry about to find their saver because the investment banking house will get the saver for the borrower so the both party will have lesser work compare to direct transfer. The disadvantage is for the investment banking house is if the borrower didn’t get the profit from the business so the borrower can give the amount that invest by the saver, so the investment bank house not responsible for that. They won’t give any money to the saver.
Financial intermediaries are the thread way to transferring capital in to financial market. Financial intermediaries specialized financial firm that facilitate the transfer of funds from saver to borrower for a capital for his business. Financial intermediary can identify as a bank. It will create a new financial product to simply transfer money and securities between the borrowers and the savers. The diagram below is showing the financial intermediaries process.
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The financial intermediaries will tack the capital or fund from the saver who invest to them and they will give their own capital to their borrowers. For example saver give 3milion to the financial intermediaries and the borrower want a capital of 2milion to do his business, so the financial intermediaries will give the lone to the borrower by adding his own inters rate to the borrower. After the business get the profit the borrower will give the money and inters to the financial intermediaries and then the intermediaries will give savers the capital by adding sum inters as a profit for the saver. So the financial intermediaries will get their profit from the inters that they set for the borrower and the give the sum of the inters to his saver. The advantage financial intermediaries are both the saver and the borrower are control by them. They will fix the lone for the borrower and they have the statement of savers ho invest their money to them. Also if the borrower can’t give the amount that he borrows from them the saver will get his capital. The disadvantage of financial intermediaries it will tack a long term to get the profit for the saver because the intermediaries is using the savers money to give more than one borrower to do their business, so when the borrowers give the money to them then only they can give the hole amount to the saver.
Financial market is helping the saver and borrower gain more profit. It also helping our country to become stable and giving a good position in economic compare to other country because if savers give more capital to the financial market the can used as a capital for borrowers to do their business to gain more profit to all of them, with this the saver get his profit, the borrower gets is profit, financial market sector can get their profit and the government can improve the economics of the country in higher level. It also give more inters to other country to inverse sum capital or business to improve our standard of life style.
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