Contemporary Issues in Financial Services Essay - 3

Contemporary Issues in Financial Services - Essay Example Nonetheless, from this essay, one will understand that financial intermediaries are here to stay, considering their positive influence in the economy, which supersedes their negative influence in the economy. Financial markets exist in almost all countries in the world, as these play an important role in the economy of a country. A financial market can be defined as a type of market where there is the trade of money and other assets, which are in the form of finances. In this kind of market, financial assets are traded in different manners. For instance, this includes the exchange of previously traded financial assets, as well as the trade of new financial assets. Besley and Brigham (2011) note that, financial markets are different from asset markets, and that this is a conceptual term, since financial markets lack a specific location, as in the case of asset markets. In the financial markets, borrowers and lenders interact at different levels. Therefore, there is also borrowing and lending activities in financial markets. ... Financial markets are significant to an economy, because of the roles they play in a country. First, financial markets enable lending and borrowing to take place. This is through the granting of purchasing power to various agents, to transfer funds for different purposes, including investments and consumption (Burton, Nesiba & Brown 2009). Financial markets also play a significant role in determining prices for new financial assets and the existing ones. These also allow for the risk sharing between providers of funds and the investors. In addition, the stockholder in a financial market is given an opportunity to resell their financial assets, a process known as liquidity. Finally, financial markets help in the reduction of both the costs incurred in transaction and information, thus increasing the level of efficiency. Besley and Brigham emphasize the importance of financial markets, as enabling the flow of cash in the economy, since these avail different ways for lenders and borrowe rs to transact financially (2011). In the financial markets, there are different types of players, just as the case of any ordinary market dealing with goods and services. These various players in financial markets are what are referred to as ‘financial institutions.’ These mainly make their profits from the transactions between the borrowers and lenders in the financial markets. These financial institutions in the United States of America are classified into four major broad categories. These include brokers, financial intermediaries, dealers, and investment bankers. All these have their specific functions in financial markets, and therefore, are of high value. Sometimes, the financial markets