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To the Supervisor, Marketing department

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CC

Subject: Financial markets

Functions of Financial markets in helping the business grow and develop

Financial markets enables individuals to trade financial securities at prices which reflect the demand and supply and low costs of the transaction (Levinson, 2014). Financial markets are found in nearly all nations of the world. The main types of financial markets include capital markets, money markets, and foreign exchange markets commodity markets among others. There are various functions that are played by markets as mentioned above and which helps in the growth and development of a business.  

The capital market- This is where companies obtain vast amounts of loans. If the prices of stock increase, the bond prices reduces (Levinson, 2014). The various types of bonds include treasury bonds and corporate bonds. Therefore the bond market provides businesses with liquidity that supports their growth and development.

Commodities market- This is where businesses offset their risks when purchasing or disposing of natural resources. Commodities future markets determine the prices in the market so we can say that they play the role of price determination. They help in identifying the prices of financial assets and defining the prices of recently issued assets by the business (Levinson, 2014). The financial markets, therefore, guarantee the accurate and justifiable amount of stock is about to be sold in the market for the initial time thus helping the growth of the business.

Money markets- This market allows business units to achieve their liquidity positions by lending and borrowing short-term loans which are typically less than one year (Levinson, 2014). This market also simplifies relations between investors and institutions with temporary extra funds and their counterparts who are faced with temporary deficiency of funds, thus helping in the growth of the business.

Insurance markets- This market plays the role of shifting or transferring risks from one business entity to another in return of payments known as premiums (Levinson, 2014). Business can use this market to strike a deal with the insurer so as to hedge the risk of unpredicted losses thus ensuring that there is continual growth.

Factors influencing the level of National Income of a country

The level of national income varies between different countries. Various factors are responsible for this and they include the following;

1.  Labor- The level of national income is influenced by the quality and the quantity of labor of a particular country. If a state has skilled labor and the size of this labor is consistent with the means of subsistence, this will increase the level of national income as opposed to a country with unskilled and weak labor and has no potentiality of increasing.

2.  The state of technical knowledge- The contemporary methods used in production has turned out to evolve along the technical expertise that is available in a country (Suman, 2018). If a country has a poor state of knowledge, the level of national income will be low as compared to a country that has advanced technical knowledge.

3.  Political instability- According to Suman (2018), political instability typically blocks the economic progress of a nation. Internal revolution and war block production efforts of a country since they increase the common profitable risks. If a state is not stable politically and faces periods of war, it is difficult for that country to maintain high levels of national income. If the country is peaceful and stable and hardly experiences periods of war, it will be able to keep high levels of national income.

4.  Terms of trade- All countries benefit in one way or the other by participating in trade. Nevertheless, the degree of benefit varies according to the changes in price levels in which exports and imports are sold. Favorable terms of trade mean that the country can obtain a greater magnitude of imports for a particular quantity of exports (Suman, 2018). If a state has favorable terms of terms of trade, it will experience a rise in the levels of national income as opposed to a country with unfavorable terms of trade.

5.  Foreign investment- Net income from investments indicates that the creditor nation can acquire goods and services from debtor nations without having to provide goods and services (Suman, 2018). As a result, if any two countries have similar Gross Domestic Product, then the nation that has a better net profit from investments will have higher levels of national income.

6.  Capital- The level of national income is also much dependent on the quality and the quantity of capital. Capital is the lifeblood of the modern sectors in the economy (Suman, 2018). If the capital of a nation consists of primitive tools, a country will have reduced levels of national income as opposed to a country using the modern types of capital in production.

Impact of market growth rates in our major markets

Market growth rate can be defined as the rise in the demand of a certain product or service overtime. It can be slow if the consumer fail to adopt high demand and it can be rapid if the customers find the good or service as useful for price levels (Adam, 2014). Markets growth rates in the major markets can have various impacts. The first impact is on the demand for various goods and services. If there is an expansion on the major markets, the will be an increase in the demand of goods and services. The markets will grow so as to cope up with this increase in demand. The second impact of the growth in the major markets is on technologies and innovations. The growth in markets would mean that there would be an improved technology and more innovation by the businesses. As a result, reduction time will be minimized and high quality of goods will be minimized. The demand of the company’s goods and services will also increase. The increased growth rates in the major markets will mean that there more funds available for other sectors of the economy that includes agriculture and small-scale businesses and this will play a part in their development. In addition, businesses will obtain a platform where they will be able to get loans to finance their working capital requirements that will contribute to the growth of industries. The final impact of the change in growth patterns is on the rates of interests and exchange rates. It will impact on the normal trading climate and this will have an effect on the profitability of the business and how the business conduct its operations.

References

Adam, K., Marcet, A. and Nicolini, J.P., 2016. Stock market volatility and learning. The Journal of Finance, 71(1), pp.33-82.

Levinson, M., 2014. The Economist Guide to Financial Markets: Why they exist and how they work. The Economist.

Suman, S. (2018). 5 Factors for Determining the Size of National Income. [online] Economics Discussion. Available at: http://www.economicsdiscussion.net/national-income/size-of-national-income/5-factors-for-determining-the-size-of-national-income/12666 [Accessed 10 Dec. 2018].

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