Impact of Financial Markets

Financial Markets include any place or system that provides buyers and sellers the means to
trade financial instruments, including bonds, equities, the various international currencies, and
derivatives. Financial markets facilitate the interaction between those who need capital with
those who have capital to invest.In addition to making it possible to raise capital, financial
markets allow participants to transfer risk (generally through derivatives) and promote
commerce (Balling et al, 2002).

Financial markets influence businesses in a number of ways including the following ways
(Exchange, 2018):

1. Financing the establishment and growth of new businesses

 Financial markets are not always a necessity for startup businesses. Instead, they mostly
rely on personal and/or family funds because they are simple to obtain and do not call
for formal relationships. Nonetheless, the possibility of using the financial market as a
source of finance might then be investigated as the company appears to be feasible.

2. Providing loans or funds for the business to function

 Financial markets, like banks, help boost the working capital of businesses when their
earnings are too low to finance the daily operations. They can do this through provision
of loans.
3. Requiring management to prioritize short-term profitability
 To ensure return on their investment, stockholders of publicly listed companies pressure
managers to focus on short-term profits. Managers who fail to perform are forced out
of the office and replaced.
4. Considering chances to lower operating hazards
This is done by:
• Commodities markets, which provide businesses with price guarantees for future products
and/or services in the event of price changes;
• Foreign exchange markets: they provide businesses with exchange rate guarantees in the
event of currency devaluations.
5. By strategically investing the company's excess capital, creating possibilities to enhance
operational earnings
 Financial markets allow businesses to supplement earnings by enabling them to invest
surplus financial assets and get interest on them.
In conclusion a country's ability to grow and function efficiently is greatly influenced by its
financial market, which should be well-developed and well-run.
Reference
Balling, M., Lierman, F., & Mullineux, A. (Eds.). (2002). Technology and finance: Challenges for
financial markets, business strategies and policy makers. Taylor & Francis Group.
Exchange (2018). Background. Retrieved
from http://mse.co.mw/index.php?route=common/about/background
Yang, M., & Heng, M. S. (2011). Global financial crisis and challenges for china : China and the
global financial crisis. World Scientific Publishing Company.