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Explain what is meant by the term financial markets. How do financial markets bridge the gap between savers and borrowers?
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Sarah Whiteway Explain what is meant by the term financial markets. How do financial markets bridge the gap between savers and borrowers? The financial system comprises all financial markets, instruments and institutions. It is through this system that financial markets operate, playing a key role in allocating resources in the economy. Financial markets intermediate between those who have money and want to earn a profit on it (savings and investors) and those who need it (borrowers and entrepreneurs). In a small community, investors and borrowers could find one another just by asking around. But in an economy of hundreds of millions of people, each with a variety of saving and borrowing needs, putting every dollar of capital to efficient use is a vastly complex yet enormously important job. By issuing claims on themselves in the form of deposits (banks), commercial paper (finance companies), contracts (insurers), or shares (mutual funds), financial markets bridge...
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