How Financial Markets Helps Savers and Borrowers?

What are financial markets and why it is important for savers and borrowers? A financial market is a system that includes individuals and institutions, and procedures that together borrowers and savers and it is no matter where is the location between the savers and borrowers. The main role of the financial market is to facilitate the funds from the individuals and businesses that have the majority fund to individuals, businesses, and governments to fulfill their needs of income. The financial institution is a process used by an organization that provides various types of financial services to their customers. The government authorities have controlled and supervised the institution according to the rules and regulations. The financial institution is giving different types of economic ideas for an organization to carry out their business. A financial institution is an establishment that gives financial services. Financial institutions based on banks, credit unions, asset management firms, and more. They are responsible for distributing the financial resources in a planned way to the potential users. The financial institutions can be categorized as Deposit-Taking Institutions, Investment Institutions, Pension Providing Institution, Risk Management Institution and more. Financial markets have five types of markets their money market, capital market, debt market, equity market, and derivative market. The money market is the market that maturities less than one year and provides liquidity to the marketplace. The capital market is transferred income to the future year, for example, home mortgages. The debt market is a financial market that forgives loans. The equity market is identifying the financial market in which corporate stock is traded. A derivative market is a market the right to sell in the future at a price set today. Their three different ways for transferring capital or fund from savers to borrowers in the financial market their direct transfer of, investment banking house, and indirect transfer (financial intermediaries). These three different ways of transferring are taking a major part in the business environment know days for increase the capital of a business or governments to do their project and they will improve their economy of their country.

Direct transfer is one of the ways of transferring capital from saver to borrower in the financial market. The direct transfer takes place when an organization sells its goods or bond directly to the savers without going through any other ways of financial institutions. The business gives its securities to the savers and the savers who getting the securities must give the money to the business when the business needs it. 

Direct transfer is giving the borrowers a direct way to get their saver to capital their money into the borrower’s business. In this direct transfer, the savers don’t have any interrogation from investment banking houses or financial intermediaries when they investing their money into the borrower’s business. For example, an organization is willing to start up a new product in their productivity and they don’t have much capital to start up the new productivity so the organization will ask the investors or savers to give some funds to start up their new productivity and after they produce their product and they will sail the product. After that, they will give the amount that was given by the savers with the dividend from the profit that the borrower earns according to how much the saver capital in the business. An advantage for direct transfer is the dialing and the transaction will be known by the borrower and the saver. They don’t have any interrogation from investment banking house or financial intermediaries so the borrower can get more capital from the saver and for the saver, he will get more dividend after the borrower gain his profit. The disadvantage for direct transfer is if the borrower gets the money from the saver and the business was faller the saver won’t get any money from the borrower because the business is lost. Or another disadvantage is if the saver gives the money to the borrower and the borrower tack the money and he can cheat the saver. The saver can’t get any help from other authorities because they do a direct transfer.

Investment Banking House is also another way of transferring capital or found from savers to borrowers in the financial market. Investment Banking House is underwriting and distributing new investment security and help the business obtain financial by an organization. The issuance of securities will middleman and facilitates by the underwriter saver. The organization will sell the stock or the bond that they have to the investment bank and the investment bank will sell the same securities to the savers. 

Investment banking house is giving the opportunity to the saver to identify which investment is better for them to gain benefits and for borrowers they don’t need to worry about finding their saver because the investment banking house will give the investor or saver to the borrower to invest capital to do their business. After the business got the profit the borrower will give the money to the investment banking house and they will give the money to the savers by adding the dividend. And for the investment banking house, they will get their income from the both borrower and saver because they are the medal person how to identify and to give the good borrower for saver and a good saver for the borrower. The advantage for investment banking houses is they will identify a good borrower for the saver to invest and they also have more than one investment plan for the savers. For borrowers, they don’t need to worry about finding their saver because the investment banking house will get the saver for the borrower so both parties will have lesser work compare to direct transfer. The disadvantage is for the investment banking house is if the borrower didn’t get the profit from the business so the borrower can give the amount that invests by the saver, so the investment bank house not responsible for that. They won’t give any money to the saver.

Financial intermediaries are the thread way to transferring capital into the financial market. Financial intermediaries specialized financial firms that facilitate the transfer of funds from saver to the borrower for capital for his business. The financial intermediary can identify as a bank. It will create a new financial product to simply transfer money and securities between the borrowers and the savers. 

The financial intermediaries will tack the capital or fund from the saver who invests in them and they will give their own capital to their borrowers. For example, saver give 3 million to the financial intermediaries and the borrower want a capital of 2milion to do his business, so the financial intermediaries will give the lone to the borrower by adding his own inters rate to the borrower. After the business gets the profit the borrower will give the money and inters to the financial intermediaries and then the intermediaries will give savers the capital by adding sum inters as a profit for the saver. So the financial intermediaries will get their profit from the inters that they set for the borrower and give the sum of the inters to his saver. The advantage financial intermediaries are both the saver and the borrower are control by them. They will fix the lone for the borrower and they have the statement of savers who invest their money to them. Also if the borrower can’t give the amount that he borrows from them the saver will get his capital. The disadvantage of financial intermediaries it will tack a long term to get the profit for the saver because the intermediaries is using the savers money to give more than one borrower to do their business, so when the borrowers give the money to them then only they can give the hole amount to the saver.

Financial market is helping the saver and borrower gain more profit. It also helping our country to become stable and giving a good position in economic compare to other country because if savers give more capital to the financial market the can used as a capital for borrowers to do their business to gain more profit to all of them, with this the saver get his profit, the borrower gets is profit, financial market sector can get their profit and the government can improve the economics of the country in higher level. It also give more inters to other country to inverse sum capital or business to improve our standard of life style.

Leave a Reply

Your email address will not be published. Required fields are marked *