Financial Market is the Engine of Economy.

Author: Salman Ahmed

Student, Business Administration

an image of finance related tools
Financial reporting

The history and Financial crisis of 2007 tells the importance of financial markets. World system theory has divided countries into three categories. The categories are core (Developed), semi-peripheral (Developing) and peripheral (Underdeveloped). Core countries are said to be developed because of many reasons. And one of the reasons is investment. The development of any country majorly depends upon the investment made domestically. And that investment turns into more capital accumulation. Resultantly, it enhances growth and leads to development. Financial markets pave the way for development. It lessens the unemployment, reduces poverty, and increase capital accumulation.
The financial market is the engine of the economy because they help in directing the flow of savings and investment in the economy to facilitate the more accumulation of capital and production of goods and services. Somehow, we can say it is a mediator between the development and investor. Investors and entrepreneurs go to the financial market in order to raise money to expand and grow their businesses and that results collectively in the success and strength of the economy. The financial market includes the stock market, debt market, money market, and foreign exchange market. All these controls all financial activities of the economy. Financial markets perform various functions likewise, making the savings useful, settling the price of securities and then making those securities liquidated. Financial markets provide a place where debtor, creditor, investor communicate easily and also it provides access to capital. History suggests that the core countries have achieved such potential by more capital accumulation. We have the recent example of the miraculous economy of china which has invested an enormous amount in the capital and turned that capital into development. Markets in developed countries are well organized and playing an active role in sustainable growth. However, the betterment of financial markets in developing countries could improve the financial conditions of the country.
Researches have suggested various policies to be implemented to make the financial markets stronger. First, govt can set a less interest rate over loans in order to make more investment domestically. And also there should be less intervention of govt in credit allocation. Secondly, the equality of opportunity for everyone should be provided so that everyone could borrow loans and make investments. The result of all will be fruitful. Unemployment could be decreased; the life of living could be improved. The poverty issue could be tackled. Ultimately all results will be in social and economic development.

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