...Complexities of the Financial System Brandi Humphrey Professor Joseph Arbeiter Finance 100 January 15, 2014 Financial markets are defined as locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments. There are four types of financial markets and they are; debt securities markets, equity securities markets, derivative securities markets, and foreign exchange markets. Financial markets are also known to facilitate the transferring of previously issued debt and equity securities from existing to new investors. Financial markets are where traders buy and sell stocks, bonds, derivatives, foreign exchange and commodities. U.S. financial markets impact the economy because it can influence prices, whether they increase or decrease. For instance when there is too much money in the real estate market, interest rates plummet. This caused peopled to take out loans, even if they were considered ineligible buyers thus creating unacceptable risks to investors who began selling them to get rid of them. This causes a crash in the real estate market and also leaves the investors high and dry. Finance is one of the most important functions of any business. Companies are financed in one or two ways; debt or equity. The definition of debt is the amount owed or that one is bound to pay to or perform for another and equity is defined as the funds supplied by the owners that represent their residual claim on the firm. Debt financing is a negative...
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...Complexities of the U.S. Financial System Strayer University Principles of Finance 100 Professor T. Nhira November 5, 2014 Complexities of the U.S. Financial System Financial markets impact many things in people’s everyday lives, and in most cases they do not realize the effects. Financial markets impact the economy, business, and individuals and ways that are often overlooked. Furthermore, the Federal Reserve also plays an important role to the financial markets and their fluctuations. In addition, interest rates make a huge impact on the entities mentioned above. All of these things tie into the financial markets and the way they affect everyday life. The U.S. financial markets impact the economy, business, and individuals by helping direct the flow of savings and investments throughout the economy in ways that facilitates the increase of capital and the production of goods and services. The worth of credit and returns on investment provide helpful signs to producers and consumers. These helps direct funds from savers and business to the consumers, government, and other type of investors. Also, the existence of healthy financial markets and institutions accelerates the international flow of funds between countries, helping the local economy. This allows investors to compare the cost of financing to their anticipated return on investments, so they can make the correct investment choice that better suits their needs (frbsf.org, 2014). The role of the...
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...Complexities of the U.S. Financial System Dr. Marcus Crawford Strayer University, School of Business Complexities of the U.S. Financial System How Do U.S. Financial Markets Impact Individuals? The effects of a collapsing market can effect individuals in several ways. One of those ways is savings. As a result of a declining economy, money becomes more precious, as commodities take precedence over luxuries. College funds, for example, is one of these luxuries. The need to pay for everyday expenditures, such as food, and utility bills, can outweigh the need to save for a child’s college education. As a result, not only may the deposits come to a halt, but withdrawals, may become a common occurrence as well. Individuals may also stop saving for retirement in this same manner, as well. How Does the U.S. Financial Market Impact Businesses? When the market crashes, businesses usually feel its effects immediately. As stated earlier, luxuries, such as dining out, for example, become non-existent, and sales start to decline. Since most businesses have their assets tied into mixed equities, these assets, can be dissolved, quite rapidly. Business begin pulling back on employee benefits, to include health care, dental plans, and matching retirement. To also make up for these losses, companies in cut other expenditures, such as payroll. Usually employees are laid off, to compensate these deficits. How Does the U.S. Financial Market Impact the Economy? With the market...
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...Assignment 1: Complexities of the U.S. Financial System Brandi Hays Professor Umair Warsi FIN100 February 1, 2015 The impact of the US financial markets on economy is quite high. This is because of all the major companies that are listed in the Stock Market contribute towards the economic growth of the country. When their performance deteriorates, their overall rating in the Stock Market suffers a downward trend. Thus, it produces a negative impact on the US economy. Though, in some cases, the dynamics of the Stock Market has its own issues and does not produces any impact on the economy. When the global financial crisis occurred in the USA in 2008, the overall Stock Market crashed which showed a negative trend of the economy. Therefore, these issues reflect the impact of US financial markets on economy. The impact of the US financial markets on the businesses is even there. When the overall position of the market is favorable, the businesses experience a positive impact. Though, this is not a usual case because some businesses flourish purely on the basis of their performance not on the basis of Stock Market position. When the US financial markets perform well, the individuals in an economy also have confidence in many aspects. They are not hesitant to spend money on the goods and are able to borrow money from the banks in order to have various types of expenditures. In some cases, the negative position of the US markets discourages the consumer to spend money...
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...Complexities of the U.S. Financial system There is a root behind all evil but there is also a solution to our economic problems. Have you ever thought about the process it takes for you to obtain a loan for your business, or who your personal bank might report to? Do you ever wonder exactly why are economy is in debt, how major business fail, or just exactly where does the bank get their money from or who what our country imports or exports? Well, the financial market is responsible for regulating all that you may have had questioned. The financial market is the electricity to our economy and without them, what would you do if the bank did not have your withdrawal available for you? Financial markets serve a purpose of creating a system for people to understand what controls their economic behavior. The market economy sets guidance as our economy revolves around goods and services. The main question is what purpose do financial markets serve? The financial market acts as a liaison between consumers and goods or services. To be more specific, the financial market would be the middle man- customers, finance, and goods/services. Take for example; a business wants to promote their product on a commercial- which might cost thousands of dollars. Financial intermediaries, like banks, will get involved and transfer capital by pulling savings from many consumers who might bank with this bank (Florida Internationl University, 2008, p.3). This process in return will create a new asset-...
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...Complexities of the U.S. Financial System Briefly describe one (1) way the U.S. financial markets impact the economy, one (1) way the U.S. financial markets impact businesses, and one (1) way the U.S. financial markets impact individuals. Companies sell stock to raise money. Once a stock begins trading in the secondary market, its change in price has no direct effect on the company that issued it. Regardless of the wavering of the stock price, the issuer would still have the money raised to fund their company. Without a doubt, every company wants to see their stock prices rise. Despite mixed opinions, there is a strong positive relationship between financial market development and economic growth. The markets help to efficiently direct the flow of savings and investment in the economy. Credit-rating agencies are known to be influenced by stock prices, and their decisions have a large effect on the availability of credit to the firm. Regulators, who take actions that affect firm cash flows (most prominently, in the case of banks), follow market prices very close. Business owners with good ideas are constrained by the amount of capital they can raise. Although they can use their own money and borrow from their family and friends, these are limited sources of capital. Eventually, as they desire to grow their companies or reach their potential, they have seek to fund-growth using other people’s money. They can borrow from fellow citizens under a contractual obligation to pay...
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...Assignment 1: Complexities of the US Financial System Describe how the US financial markets impact the economy, businesses, and individuals. US financial markets play an important role in contributing to the health and efficiency of the economy, businesses, and individuals. (Spiegel, 2002) Because there is a strong relationship between the health of the economy and financial market development and economic growth, even a slight dip in the financial markets can radically effect how the economy, businesses, and individuals respond. (Ask Dr Econ, 2005) Financial markets “facilitate the raising of capital in the capital markets, the transfer of risk in the derivatives market, price discovery, global transactions with integration of financial markets, the transfer of liquidity in the money markets, and international trade in the current markets.” (Financial Markets, 2013) When the financial markets are doing well, “firm-level, industry-level, and cross-country studies all suggest that the level of financial development exerts a large, positive impact on economic growth.” (MIT, 2001) When financial markets are not doing well, interest rates on loans will increase and access to credit decreases. Interest rates are higher because of the risk that banks feel are involved. In times of high risk, interest rates go up. It is a way for banks to limit their losses and make as much money back – just in case a default occurs. So those businesses that are able to get credit are finding...
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...Assignment One: Complexities of the U.S. Financial System Christine Capell Professor.Umair Warsi FIN 100 - Principles of Finance May 5, 2013 The US financial markets impact the economy, businesses, and individuals in a variety of ways, one of which is providing a way for businesses to raise capital by issuing securities. The capital markets enable new companies to raise funds to grow. Typically, banks would not lend in these situations because of the lack of sufficient collateral and high risk. Without the public securities markets or private venture capitalists to provide the funding for these higher risk investments, the economy would be much smaller. The markets and the economy are closely linked and are especially reactionary to the each other, i.e. if the economic indicators show recession, the markets typically turn down, particularly the equity markets. Currency markets, FOREX or foreign-exchange markets, and the mortgage markets will move in response to the health of the economy and the movement of interest rates. Should those economic indicators prove to be positive, then the markets turn upwards or even “fly”. When the markets experience an intense downtown, it can lead to a severe recession with the prices of financial assets declining sharply, which can cause individuals, businesses, and financial institutions to become less able to handle their debt payments or it can even lead to financial system failure with widespread bank closures and mortgage foreclosures...
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...Assignment1: Complexities of the U.S. Financial System Synthia Reed FIN 100 Professor Lester Reid Strayer University May 5, 2013 Complexities of the U.S. Financial System The U.S. financial markets play a big role in the economy. If no one is investing in businesses, they cannot start up, or grow larger to meet the needs of the country or nation. The economy is directly impacted by the amount of stocks bought and sold each day. Before the U.S. stock market crashed in 1929, it was booming. Americans had invested so much money in France that when their economy rose, so did the U.S. It collapsed because Americans pulled their money out of France and put it in U.S. stocks. If everyone pulled their investments today, the same thing would happen. Businesses would fail, and the U.S. would go into more debt. The central bank of the United States is the Federal Reserve System controls the financial system, and is the most powerful single actor in the U.S. economy. The head of the central banking system of the U.S. is called the Chairman of the Federal Reserve. The chairman is appointed by the president of the United States and serves a four-year term with confirmation from the Senate, currently serving is Ben Bernanke. The Federal Reserve System has a total of seven board members including the Chairman. With the exception of the Chairman members serve a staggered fourteen-year term. The Federal Reserve Board of Governors is responsible for the monetary policy and serves...
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...5/4/14 According to Melicher & Norton “ the financial system is a complex mix of financial intermediaries, markets, instruments, policy makers , and regulations that interact to expedite the flow of financial capital from savings into investment.” ( Introduction to finance, p 11). Kimberly Amadeo defines financial markets as being the place where “ traders buy and sell stocks, bonds, derivatives, foreign exchange and commodities. These markets are where businesses go to raise cash to grow, companies reduce risks, and investors make money.” The financial market impacts the economy by providing confidence to investors and growth opportunities. If the investors are trust the system, they will buy more stocks in businesses which would allow the economy to grow. More jobs will be created and new goods and services will be provided to consumers. The financial market positively impacts businesses by allowing them to raise new capital to finance their growth and future investments. An initial public offering ( IPO) is the sale of stock by a company to the public which allows its to raise money by issuing either debt or equity. The financial market also impact individuals by allowing them for example to invest their savings such as 401K or IRA’s in the stock market in the hope of a better retirement. In the United Stated and most developed countries the financial markets are strongly linked to the political system of the countries. Financial markets are where investors can...
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...Complexities of the U.S. Financial System For the past few years after the financial crisis the United States financial system has been going through many changes. The financial system has impacted several environmental aspects in the economy, federal regulation and individuals. One way the United States financial market can impact the economy is by the use of use of mutual fund improvements using it as a tool for price changes, which will trigger the effect, by identifying the strong outcome of market prices. The decrease in valuation leads to a 7% increase in acquisition, likelihood, relative to a 6% takeover possibility. In addition, globalization has an impact in the financial markets by reducing companies' cost of capital. Furthermore, globalization also helps improve corporate governance in a way that manager engagements are better aligned with stakeholder interests. This progress in corporate governance further contributes to a reduction in a firm’s cost of capital. Another impact on the organizations are the cost of raising resources in capital markets (its “cost of capital”). On the other hand, there are conditions under which globalization improvements itself has led to a decrease in United States cost of capital. Financial markets had not just impacted the economy, businesses, and individuals of the U.S. but also had an effect in the economy all over the world. The United States Federal Reserve have very important role in the expenditures system of the country...
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...The U.S. Financial System and its Complexities Principles of Finance Week 4 Assignment 1 Professor Neilson Olin Frye 7/22/14 The effect of the US financial markets on the economy is considerably high. Part of the reasoning behind this is that all the major companies listed in the Stock Market directly contribute in the economic growth of the U.S. When the individual company performance decreases, their Stock Market rating starts to trend downward. This downward trend develops a negative impact on the U.S. economy. The Stock Market (whose dynamics have their own issues) doesn’t always produce an impact on the economy. In 2008, the U.S. went through a global financial crisis. The Stock Market crashed and negatively impacted the U.S. economy. These issues show the impact of US financial markets on economy (Chong & Miffre, 2009). The U.S. financial markets even have an impact on the companies and business. When the U.S. financial market is in a favorable position, there is a positive impact on the businesses and companies but is not always normal, some businesses flourish solely on their performance and not on their position in the Stock Market (Gai, 2007). When the overall performance of the U.S. financial markets is positive, the consumer that makeup the economy also has a greater self-confidence in regards to the overall health of our country. The consumers are not as hesitant to spend money on their needed items, and the banks are more willing to loan...
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...Complexities of the US Financial System Impact of US Financial Markets on Economy In the United States the effect of financial markets on the economy is very high considering the fact that the majority of the main companies listed in the stock exchange play a pivotal role in contributing towards the country’s economic growth. Thus, any depreciation as it pertains to performance plummets the company’s ratings in the stock market impacting negatively on the country’s economy. Nonetheless, sometimes the dynamics evident in the stock market has limited effect on the company particularly when it entails other issues (Evans & Hnatkovska, 2005). For instance, the occurrence of the economic downturn in 2008 led to the crashing of the stock market which lead to negative economic growth; both of these are a reflection of the impact that US financial markets have on the country’s economy. Impact on businesses: US financial markets have some effect on businesses because favorable portions of the financial markets impact on businesses positively, although not always considering that some businesses solely depend on their performance to grow as opposed to the position of the stock market (Chong & Miffre, 2009). Impact on individuals: Good performance of the financial markets means improved confidence of those affected by the economy: hence, they tend to spend their money more willingly and borrow more money from banks to cater for their expenditures. Usually, when the position of the...
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...The U.S. financial system has many complexities and it is impacted by several environmental factors including federal regulations and the economy. The U.S. financial markets impact the economy, businesses, and individual by the movement of funds among financiers, businesses and governments. It involves investments in the area of sales or marketing of securities, the management of investment risk through portfolio diversification and the analysis of securities. Melicher, R. W., & Norton, E. A. (2011).Pg. 6 The U.S. Federal Reserve is the central bank of the United States and is responsible for regulating the banking system, setting monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices. ("What is the," 2013) The role of the U.S. Federal Reserve is important for the U.S. payment system. It provides banking service for the twelve Federal Reserve Banks by providing banking service to depository institutions and to the federal government. The depository institutions maintain accounts including collecting checks and provide various payment services, distributing and receiving currency and coin, and electronically transferring funds. Melicher, R. W., & Norton, E. A. (2011). The Federal Reserve Chairman is a position with high ethical standards and morals; a high standard are a must. A successful chair must have the confidence and trust of the president and Congress and bank officers, foreign officials,...
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...Our financial markets make a major impact on how our financial system operates and how we base our current economic performance. Financial markets consist of actions in conjunction with financial securities such as, bonds, stocks, options, future, and commodities like gold or housing. Financial markets stimulate the flow of capital expenditures, risk being taken in the stock markets, and also international transactions. Globalization and the success of our financial market has made other nations markets dependent on upon ours. Even the major crisis's in the financial markets inevitably effect our economy dramatically. Like the financial bubble in 2007, individuals and businesses to a massive hit, when the bubble burst in the housing market. The rising of the housing market, with banks giving out loans to about anyone that walked in and individuals who knowingly not able to afford them taking advantage of it, lead to complete fall of the housing market. The U.S. Federal Reserve is the major power in the monetary aspects of our country, and not only our country, but many other countries rely on it. The Federal Reserve, also known as our central bank of The United States, is undoubtedly one of the most influential and powerful establishments globally. The Federal Reserve System traditionally conducts monetary policy, regulates and supervises banks, oversees financial markets, and other various banking systems. The Federal Reserve maintains its control over our country's...
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