What is the importance of the financial market?, The financial system comprises all financial markets, instruments and institutions. Financial markets refer broadly to any marketplace where the trading (buying and selling) of securities, currencies and derivatives,insurances and mortgages occurs, including the stock market, bond market, forex market, and derivatives market, money market, mortgage market and insurance market. Financial markets are vital to the smooth operation of market economies.

Financial markets enable this smooth operation by allocating resources and creating liquidity for businesses, intermediaries and the public sector when operating as a market participant or supervisor. They also allow intertemporal transactions reflecting time preferences and the pricing thereof. Furthermore the secondary markets contribute to efficiency of the price formation proces.

They also allow intertemporal transactions reflecting time preferences and the pricing thereof. Furthermore the secondary markets contribute to efficiency of the price formation proces.

Importance of financial markets:-

Robert Lucas asserted in 1988 that economists badly over-stress the role of financial factors in economic growth. Moreover, Joan Robertson declared in 1952 that “where enterprise leads, finance follows”. According to this view, economic development creates demands for particular types of financial arrangements, and the financial system responds automatically to these demands.

Financial markets build a decent amount of liquidity and allow businesses to grow and raise money for the ventures.

Here are some of the frequently used financial markets:

1. Stock market

2. Forex market

While financial markets help maintain the economy’s stability, investors need a platform to place their orders on the market. This is where the financial intermediaries help individuals. They provide a convenient avenue for an investor to participate in a financial transaction. In addition, financial intermediaries help investors participate in the different stock exchanges and markets. They also assist investors in understanding the risk and rewards of investing in the market.