Research How Financial Markets And Institutions Influ 288374
Researchhow Financial Markets And Institutions Influence The Us And Gl
Research how financial markets and institutions influence the US and global economies. Create a 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.
Paper For Above instruction
Financial markets and institutions are fundamental components of the global economic system, functioning as conduits for capital transfer, risk management, and economic development in both the United States and worldwide. The influence of these markets extends beyond national borders, shaping economic stability, growth, and financial resilience on an international scale. This paper explores four critical financial markets and institutions: stock markets, mortgage markets, government securities markets, and foreign exchange markets, analyzing their specific functions and their impacts on both the US and the global economy.
The stock market, encompassing platforms such as the New York Stock Exchange (NYSE), plays a pivotal role in facilitating capital raising for companies through the issuance of shares. It serves as a barometer of economic health, reflecting investor confidence and economic prospects. In the US, the stock market significantly influences economic growth by enabling firms to access capital for expansion and innovation. Globally, the US stock market's performance impacts investor sentiment worldwide, affecting foreign investments and international financial stability (Baker & Wurgler, 2007). Fluctuations in stock indices can trigger economic shifts in other countries, demonstrating the interconnected nature of global markets.
Mortgage markets, primarily characterized by mortgage-backed securities (MBS), are critical for financing homeownership in the US. These markets generate liquidity for banks and lenders, supporting the housing sector, which is a substantial component of US GDP. The US mortgage market also affects global economies; for instance, during the 2008 financial crisis, the collapse of MBS contributed to a worldwide economic downturn by impairing financial institutions and causing credit freezes (Gorton & Metrick, 2012). Thus, the US housing and mortgage markets serve as both a driver of economic growth and a potential source of systemic risk that can reverberate globally.
Government securities markets, involving U.S. Treasury bonds and bills, are fundamental for funding government operations and managing national monetary policy. The US Treasury securities are considered among the safest assets worldwide and a benchmark for global interest rates. Their influence extends globally; changes in US Treasury yields can affect international borrowing costs, investment flows, and currency valuations. For example, a rise in US interest rates often attracts foreign investment but can also lead to capital outflows from emerging markets, demonstrating the interconnectedness of fiscal policy and global financial stability (Clarida, 2001).
The foreign exchange (forex) market is the largest and most liquid financial market, where currencies are traded. This market determines exchange rates, which are essential for international trade and investment. The US dollar's dominance in forex markets influences global economic stability, commodity prices, and international trade balances. Fluctuations in the dollar’s value impact developing economies and global financial conditions, reinforcing the US dollar's central role in the world economy (Frankel & Saravelos, 2010). Exchange rate movements driven by US monetary policy or fiscal changes can trigger worldwide economic shifts, underscoring the influence of the US on global financial stability.
In conclusion, financial markets and institutions such as stock markets, mortgage markets, government securities markets, and foreign exchange markets are integral to the functioning of the US and the global economy. Their interconnectedness means that shifts within these markets can have far-reaching implications, affecting economic growth, stability, and political risk across nations. Understanding the dynamics of these markets is essential for policymakers, investors, and economists aiming to foster sustainable global economic development.
References
Baker, M., & Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129-152.
Clarida, R. (2001). The dollar and the global economy. International Journal of Finance & Economics, 6(1), 1-9.
Frankel, J. A., & Saravelos, G. (2010). Are financial crises becoming more contagious? Journal of International Economics, 81(1), 62-77.
Gorton, G., & Metrick, A. (2012). Securitized banking and the run on repo. Journal of Financial Economics, 104(3), 425-451.