Chapter 3, Problem 1PROB

Summary Introduction

Financial markets are the markets or the place where financial instruments like equities, bonds, derivatives, currencies, and precious metals are traded among buyers and sellers. These markets represent the mechanisms by which investors and debtors are brought together.

Explanation of Solution

The following are the ways in which financial markets run freely and efficiently, and affect the standard of living in a country.

In financial markets, an investor gets an opportunity to make a choice to select the available investment securities which give high returns with low risk.

In financial markets, a borrower can get the optimum terms for his debt or borrowings with respect to his need and credit worthiness.

Financial intermediaries in the financial markets such are banks, credit unions, etc., collect deposits from investors and provide loans to individuals and firms those required. These intermediaries bring together investors and borrowers as efficiently as they currently do.

Financial markets provide an opportunity for foreign investors through foreign direct investment which makes more investments for small organizations and helps in increasing employment.