Financial Markets and Institutions homework Assignment

Financial Markets and Institutions homework - Assignment Example The lenders earn interest as a return on the loan. However, the individuals also use bond markets to obtain loans, but it is a rare practice. The final type of financial market is the arena where currencies are swapped in order to fulfill the demand of a particular currency. The price of a currency is determined by finding out its demand curve’s interaction point with another one. The price of highly demanded currencies such as the American dollar, the English Pound, and Euro has been known to dominate others. The trick is to lower the interest in the country so that the currency does not face substantial level of devaluation, and therefore, its demand remains stable in the market. At the same time, all of the financial markets operate in order to facilitate exchange of money by bounding borrowers with contractual obligations to keep their part of the bargain. The accumulation of money into a few hand invite stagnation, and therefore, it is imperative to keep funds afloat in order to drive down the level of income disparity in the economy. The financial markets work to convert savings into investments, and as a result, the companies consistently create wealth. The network of financial markets is globally integrated, and transferring money from one economy to another is a matter of a few minutes nowadays. The financial markets create efficiency in the economie s by helping investors in shifting their financial resources into the financial system that offers higher returns. The progressive countries are always looking to make their economies suitable for foreign investors in order to have surplus monetary resources at the disposal of the local population (Alfaro, Chanda, Kalemli-Ozcanc, & Sayek, 2004). In this way, better use of money takes place. The fundamental form of a financial intermediary is packed in the shape of a bank because it brings savers and borrowers together