4.4
ROLE OF FINANCIAL MARKETS
FACILITATING SAVING
it allows individuals and firms and opportunity to save their money
can be done through a range of assets:
storing money in savings, and can earn interest
holding stocks and shares
pension funds - savings to access when retired
LENDING TO BUSINESSES AND INDIVIDUALS
lending money allows for consumption and investment
e.g
taking a personal loan out from a high street bank, paid back with interest
mortgages are loans used to purchase a home, paid back with interest
CAN PROVIDE MICROFINANCE
FACILITATING THE EXCHANGE OF GOODS AND
SERVICES
facilitates the exchange of goods and services by creating a payment system
central banks - print money, institutions - process cheques, companies - offer
credit card services, banks - buy and sell foreign currencies.
PROVIDING FORWARD MARKETS IN CURRENCIES
AND COMMODITIES
4.4 1
, FORWARD CONTRACTS - contracts that guarantee a trade happens at a later date
and certain price
providing a forward market allows firms to buy and sell in the future at a set
price
e.g a farmer can sell a crop they are growing at a guaranteed price in a
month
e.g they can set a fixed price for a purchase of currency in the future
this can reduce risk or uncertainty for firms
firms can ensure the prices of imports in the future
helps to provide stability
useful for commodity goods or currencies which have high price volatility
banks can help to write up and manage the forwards contracts
Not all firms benefit from forward markets
Small firms may not have the knowledge or access to use them.
This means only large firms can reduce risk.
Therefore, the financial sector does not help all businesses equally
PROVIDING A MARKET FOR EQUITIES
firms sell a percentage of their company to investors through shares, to raise
money to invest
they do this by selling a number of shares of the company
e.g in 2017 Uber sold 17.5 % of its company, 255 million shares
large international banks help companies sell shares by finding investors to
buy them
the bank can take the shares and sell them on the company’s behalf
4.4 2
ROLE OF FINANCIAL MARKETS
FACILITATING SAVING
it allows individuals and firms and opportunity to save their money
can be done through a range of assets:
storing money in savings, and can earn interest
holding stocks and shares
pension funds - savings to access when retired
LENDING TO BUSINESSES AND INDIVIDUALS
lending money allows for consumption and investment
e.g
taking a personal loan out from a high street bank, paid back with interest
mortgages are loans used to purchase a home, paid back with interest
CAN PROVIDE MICROFINANCE
FACILITATING THE EXCHANGE OF GOODS AND
SERVICES
facilitates the exchange of goods and services by creating a payment system
central banks - print money, institutions - process cheques, companies - offer
credit card services, banks - buy and sell foreign currencies.
PROVIDING FORWARD MARKETS IN CURRENCIES
AND COMMODITIES
4.4 1
, FORWARD CONTRACTS - contracts that guarantee a trade happens at a later date
and certain price
providing a forward market allows firms to buy and sell in the future at a set
price
e.g a farmer can sell a crop they are growing at a guaranteed price in a
month
e.g they can set a fixed price for a purchase of currency in the future
this can reduce risk or uncertainty for firms
firms can ensure the prices of imports in the future
helps to provide stability
useful for commodity goods or currencies which have high price volatility
banks can help to write up and manage the forwards contracts
Not all firms benefit from forward markets
Small firms may not have the knowledge or access to use them.
This means only large firms can reduce risk.
Therefore, the financial sector does not help all businesses equally
PROVIDING A MARKET FOR EQUITIES
firms sell a percentage of their company to investors through shares, to raise
money to invest
they do this by selling a number of shares of the company
e.g in 2017 Uber sold 17.5 % of its company, 255 million shares
large international banks help companies sell shares by finding investors to
buy them
the bank can take the shares and sell them on the company’s behalf
4.4 2
