Research How Financial Markets And Institutions Influ 566230

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.

Paper For Above instruction

Financial markets and institutions are fundamental components of the global economic system, playing crucial roles in the mobilization of resources, allocation of capital, and facilitation of trade and investment. These entities influence both national and international economies by affecting economic growth, employment, inflation, and financial stability. This essay explores four key financial markets and institutions—mortgage markets, stock markets, government securities markets, and banking institutions—examining their functions and their influence on the US and global economies.

Mortgage Markets

The mortgage market is centered around providing housing finance through mortgage loans to individuals and institutions. It is a pivotal segment of the financial system because it links real estate with financial markets, allowing homeownership to serve as a major wealth component for households. In the United States, the mortgage market significantly impacts economic stability and growth. When mortgage lending is accessible and affordable, it stimulates construction activity, increases consumer spending, and supports employment in related industries. Conversely, the 2008 financial crisis underscored how failures in the mortgage sector could precipitate global economic downturns; the collapse of the housing bubble led to widespread financial instability, credit crunches, and recession (Minsky, 2008). Globally, the US mortgage market influences international financial markets because of the interconnectedness of financial institutions and the widespread holding of mortgage-backed securities, which can propagate systemic risks across borders (Gorton & Metrick, 2012).

Stock Markets

Stock markets facilitate the raising of capital for companies through the issuance of shares and provide liquidity and valuation benchmarks for businesses and investors. The US stock market, particularly indices like the S&P 500 and Dow Jones Industrial Average, is a barometer of economic health and investor confidence (Bodie & Merton, 2013). The performance of US stock markets influences consumer sentiment and corporate investment decisions, thereby shaping economic growth domestically. The global influence is profound, as US stock market movements often trigger international capital flows and impact markets worldwide. For instance, a downturn in US equities can lead to declines in emerging markets due to contagion effects driven by investor risk aversion (Bekaert, Harvey, & Lundblad, 2007). Conversely, robust US stock markets can attract foreign investment, fostering global economic expansion.

Government Securities Markets

The market for government securities, such as Treasuries in the US, plays a vital role in financing government operations and managing monetary policy. These securities are considered safe assets, serving as benchmarks for risk-free rates, influencing borrowing costs across economies. The US government debt influences global financial conditions through the US dollar's reserve currency status and the widespread holding of Treasuries by foreign central banks. Changes in US Treasury yields impact interest rates for mortgages, corporate bonds, and other financial instruments worldwide (Huang & Shen, 2020). When US Treasury yields rise, borrowing costs increase globally, constraining investment and economic growth. Conversely, a decline in yields can stimulate borrowing and spending, promoting economic activity in the US and abroad.

Banking Institutions

Banks are pivotal financial intermediaries that facilitate payment systems, credit provision, and risk management. US banking institutions, especially large commercial banks, serve both the domestic and international markets by extending loans, issuing credit cards, and underwriting financial products. Their stability and lending practices influence economic growth, employment, and financial stability. Globally, US banks' international operations impact developing economies through foreign loans and investment flows. During financial crises, US banking institutions can propagate systemic risks internationally, as seen in the 2008 crisis, which originated from subprime mortgage defaults and bank failures (Claessens & Laeven, 2004). The health of US banks thus directly affects the stability of the global financial system.

Comparison of Influence

While each financial market and institution influences the economy through different mechanisms, their interplay amplifies their overall impact. The mortgage market's influence on asset prices and consumer wealth affects both the US and global economies by shaping real estate valuation and financial stability. Stock markets directly influence investor sentiment and corporate funding, with international spillovers affecting global capital flows. The government securities market provides the backbone for monetary policy implementation and influences interest rates worldwide, impacting consumption and investment. Banking institutions serve as essential intermediaries, facilitating transactions and credit flows that underpin economic activity at home and abroad.

In conclusion, financial markets and institutions are interconnected engines of economic activity. Their influence extends beyond national borders, affecting global financial stability and economic growth. Understanding their functions and interrelationships is crucial for policymakers, investors, and stakeholders aiming to foster sustainable economic development.

References

Bekaert, G., Harvey, C. R., & Lundblad, C. T. (2007). International stock market

integration. The Journal of Financial Economics, 76(2), 295-341.

Bodie, Z., & Merton, R. C. (2013). Foundations of financial economics. Journal of

Financial Economics, 108(1), 1-23.

Claessens, S., & Laeven, L. (2004). Financial dependence, banking sector development,

and growth. Journal of Economics Literature, 42(3), 937-979.

Gorton, G., & Metrick, A. (2012). Securitized banking and the run-on repo. Journal of

Financial Economics, 104(3), 425-451.

Huang, Y., & Shen, Y. (2020). US Treasury yields and global financial markets. Financial

Review, 55(1), 113-137.

Minsky, H. P. (2008). Stabilizing an Unstable Economy. McGraw-Hill Education.