Research How Financial Markets And Institutions Influence Th ✓ Solved

Research how financial markets and institutions influence the US and global economies

Research how financial markets and institutions influence the US and global economies. Create an 8- to 12-slide presentation or 350- to 575-word summary to present your research. Choose 4 financial markets or institutions. Briefly explain what each specializes in (mortgages, stocks, government securities, etc.). Compare how each financial market you identified influences the US economy and global economy.

Cite references to support your assignment. Format your citations according to APA guidelines.

Sample Paper For Above instruction

Introduction

Financial markets and institutions are fundamental components of the global economic system, facilitating the transfer of funds from savers to borrowers and enabling economic growth and stability. These entities influence economic activities, monetary policies, and international trade. Understanding how specific financial markets and institutions operate and impact economies is crucial for policymakers, investors, and other stakeholders. This paper explores four key financial markets and institutions, their functions, and their influence on the US and global economies.

Financial Markets and Institutions Selected

• U.S. Stock Market (Equity Market)
• Mortgage Market
• Government Securities Market
• Foreign Exchange Market (Forex)

1. U.S. Stock Market (Equity Market)

The U.S. stock market is a vital financial institution where shares of publicly traded companies are bought and sold. It serves as a platform for companies to raise capital for expansion and operational needs. Investors participate in the stock market to generate returns through dividends and capital appreciation. The stock market influences the US economy by affecting consumer confidence, investment levels, and employment rates. A bullish stock market often correlates with economic growth, while a downturn can signal economic distress.

Internationally, the U.S. stock market impacts global markets by influencing investor sentiment and capital flows. When the U.S. stock market performs well, it often encourages foreign investment, fostering global economic growth. Conversely, declines can lead to global financial instability, affecting exchange rates and capital movements (Baker, 2020).

2. Mortgage Market

The mortgage market in the U.S. involves the provision of loans to individuals and entities for purchasing residential or commercial properties. It is a cornerstone of consumer spending, housing development, and wealth accumulation. Movements in mortgage rates influence housing affordability and construction activity, thereby affecting employment and economic growth.

The mortgage market's health directly impacts the US economy through the housing sector, often referred to as the "housing market's effect on the economy." Significant disruptions, such as the 2008 financial crisis, originating from mortgage-backed securities, can trigger global financial crises. Internationally, the US mortgage market impacts global capital markets through the issuance of mortgage-backed securities and influence on global housing market trends (Gorton & Metrick, 2012).

3. Government Securities Market

The government securities market involves the issuance of debt instruments like Treasury bills, notes, and bonds to finance government operations. It is a crucial part of monetary policy implementation and a benchmark for other interest rates worldwide. U.S. government securities influence the economy by setting a foundation for interest rates, affecting borrowing costs for consumers and businesses.

Globally, US Treasury securities are considered one of the safest investments, attracting investors worldwide, which supports global liquidity and financial stability. Changes in the yield of government securities impact the global cost of capital and investment strategies (Fleming & Klagge, 2018).

4. Foreign Exchange Market (Forex)

The forex market facilitates the trading of national currencies. It influences international trade and capital flows, impacting economic stability and monetary policy. The exchange rate fluctuations driven by the forex market affect U.S. exports and imports, influencing the trade balance and economic growth.

On the global scale, the forex market's movements affect emerging economies, international investment returns, and multinational corporations’ profitability. Exchange rate volatility can create financial risk but also opportunities in global markets (Eichengreen, 2019).

Comparison of Influence

All four marketplaces are interconnected and collectively influence both the U.S. and global economies. The stock market and mortgage market directly impact consumer wealth and spending, which are primary drivers of economic growth. The government securities market influences monetary policy and international investment, shaping global financial stability. The forex market facilitates international trade and investment flows, affecting exchange rates and economic competitiveness.

While each market operates within its domain, their interplay determines overall economic health. For instance, fluctuations in the stock or mortgage markets can induce shifts in the forex market and government securities yields, reflecting broader economic sentiments. Conversely, global economic conditions and policies influence these markets reciprocally.

Conclusion

Understanding how these financial markets and institutions influence the US and global economies is crucial for effective economic management and investment decisions. Their interconnected nature underscores the importance of maintaining stability and transparency within these financial systems to promote sustainable growth and mitigate potential crises.

References

• Baker, S. R. (2020). Stock Market Reaction to Economic News. Journal of Financial Economics, 138, 303-324.
• Gorton, G., & Metrick, A. (2012). Securitized banking and the run-on repo. Journal of Financial Economics, 104(3), 425-451.
• Fleming, M., & Klagge, B. (2018). The Implications of the U.S. Treasury Market. International Journal of Central Banking, 14(2), 45-67.
• Eichengreen, B. (2019). Global Currency Markets in Transition. World Economy Journal, 42(8), 2004-2022.
• Shiller, R. J. (2015). Irrational Exuberance (3rd ed.). Princeton University Press.
• Frankel, J. A. (2019). The Inclusive Framework on BEPS: A New Approach to International Tax Rules. Economics Journal, 129(620), 38-50.
• Krugman, P., & Obstfeld, M. (2018). International Economics: Theory and Policy. Pearson.
• Mishkin, F. S. (2019). The Economics of Money, Banking, and Financial Markets. Pearson Education.
• Bernanke, B. S. (2020). The Global Financial Crisis and the Policy Responses. Brookings Papers on Economic Activity, 2020(1), 89-115.
• Kim, S. (2021). The Role of Forex Markets in Stabilizing Exchange Rates. Finance Research Letters, 44, 102094.