Financial Markets Study Questions Essay

14.1 What are pecuniary markets? What modus operandi do they perform? How would an economy be worse off without them? m unitytary markets are institutions and procedures that facilitate transactions in all types of monetary claims. financial markets perform the function of allocating savings in the economy to the ultimate demander(s) of the savings. Without these financial markets, the total wealth of the economy would be lessened. Financial markets aid the ramble of capital formation in the economy.The economy would be worse of without financial markets for several reasons. Savers would not be commensurate to earn a drive home on their savings. People who need capital wouldnt be able to get the funds from other people and so would have to bank only on their own bills. The inability to get capital from others would deadening the growth of businesses and reduce the purchases of consumers because they can no longer get loans. These would consume to decreased demand for prod ucts and services as well as a decrease in open jobs both of which would harm the economy.14.3 Distinguish among the money and capital marketsMoney Markets facilitates transactions using short-term financial instruments whereas, Capital Markets facilitates transactions using long-term financial instruments.A money market is a market for short term debt securities such as bankers acceptances, commercial paper, repos, negotiable certificates of deposit, and Treasury Bills with a maturity of one year or less and often 30 days or less. Money market securities are generally very safe coronation which returns a relatively low interest rate that is most attach for temporary cash storage or short-term time horizons. A capital market is where debt or equity securities are traded.14.4 What major benefits do corporations and investors enjoy because of the existence of organized protection exchanges?Organized stock exchanges propose for A around-the-clock market. This means a series of c ontinuous security prices is generated. Price changes between trades are dampened, reducing price volatility, and enhancing the liquidity of securities. Establishing and bare fair security prices. Prices on an organized exchange are fixed in the manner of an auction. Moreover, the prices are published in widely available media like advancedspapers. An aftermarket to aid businesses in the flotation of new security issues. The continuous pricing mechanism provided by the exchanges facilitates the determination of offering prices in new flotations. The initial buyer of the new issue has a energetic market in which he can sell the security should he need liquidity rather than a financial asset.