Role of financial markets

• A financial market is a place/system that allows the exchange of goods/services and financial instruments (e.g bonds, stocks, assets)
• The five roles of financial markets are: to facilitate savings, to facilitate the exchange of goods/services , to lend to businesses + individuals, to provide a forward markets, to provide a market for equities
• Financial markets provide a place for businesses and indivduals to save money which can be used in future to change consumption or investment in the economy (component of AD)
• Financial markets provide forward markets which enable price stability
• Equities are shares in public companies which are listed on the stock exchange for purchase by the public.
• Financial markets provide a place for market equities where the public can buy shares - this means that businesses can finance expansions and operations whilst the public accumulate dividends which can be used for consumption.
• Asymmetric information in financial markets means that there is not sufficient information information to make rational choices about the value of an asset which affects the buyer or seller and in the transaction