Financial markets and institution Essay Example | Topics and Well Written Essays - 750 words

Financial markets and institution - Essay Example A good combination of a well-developed financial market and a diversified financial instrument and products sufficiently provides for the needs of lenders and borrowers, and hence improve the overall economy. For instant, financial institutions like banks have special roles to play for multiple companies that are in need of funds. Banks can contribute to prevent the effect of a sudden economic shock that might affect their customers. The banking industry always stands ready to provide their clients with financial aid even in difficult circumstances, like when the liquidity of financial market dries up. They are the financial intermediaries that add cost to the allocation of capital. In addition, some economic projects can be financed by financial institutions such as banks in cases where the market cannot finance such projects. Big financial markets which have lots of financial and trading activity ensure that more liquid funds are provided to the market participant than in smaller markets. Most assets of financial market are liquid which may sometimes have secondary market to ensure that the existing financial asset transfer occur at a very low cost (Willem, 2001). The effective flow of finance in a given market ensures that the market participants are able to provide their goods and services effectively and therefore ensures an improved economic growth of the given country. Commercial banks are the most diversified and largest financial intermediaries due to the enormous range of liabilities and assets that they hold. Most of their liabilities are always in the form of saving deposits, time deposit and various types of checks. The type of assets that commercial banks hold are the securities of the various denominations and forms, which include consumer loans, mortgage loans, loans that are given to the state and the local government. These banks are the most