Question

Assignment Topic:
We have to describe the evolution of factors market, product market, financial markets and financial information market in the economy. Briefly describe the role Financial Markets in a Modern economy.

Requirements
Minimum 1000 words - Maximum: No limit

Answer 1

Answer:- Evaluation of factor market:-

a factor market is a market where factors of production are b7ought and sold, such as the labormarket ,physical capital market, the market for raw materials, and the market for management or entrepreneurs resources.

Firms buy productive resources in return for aking factor payments at factor prices. The interaction between product and factor markets involves the principle of derived demand. Derived demand refers to the demand for productive resources, which is derived from the demand for final goods and services or output. For example, if consumer demand for new cars rises, producers will respond by increasing their demand for the productive inputs or resources used to produce new cars

Production is the transformation of inputs into final products.Firms obtain the inputs (factors of production) in the factor markets. The goods are sold in the products markets. In most respects these markets work in the same manner as each other. Price is determined by the interaction of supply and demand; firms attempt to maximize profits, and factors can influence and change the equilibrium price and quantities bought and sold, and law supply and demand hold.

The existence of factor markets for the allocation of the factors of production, particularly for capital goods is one of the defining characteristics of a market economy. Traditional models of socilalism were characterized by the replacement of factor markets with some kind of economic planning, under the assumption that market exchanges would be made redundant within the production process if capital goods were owned by a single entity representing society.

Households and firms are a vital part of the economy. While households are essentially buyers and firms are sellers in the goods and services market, these roles are reversed in factor markets. In factor markets, households are the sellers of factors of production like their labor and capital (in the form of their savings), while firms are the buyers of these factors.

The combination of the factor markets, and the goods and services market, forms a closed loop for the flow of money. Households supply labor to firms, which pay them wages and salaries that are then used to buy goods and services from the same firms. This is a symbiotic relationship that benefits the economy.

A factor's price represents an income to its owner, for example, wages received by a worker, or the rent on land. The price for each factor is based on supply and demand, and is "derived demand," in that it is based on the demand for output. In a booming economy with a tight labor market, wages will rise because demand for workers is high; conversely, in recessionary conditions where unemployment is high, wages will remain stagnant or even fall.

Evaluation of product market

product market is the market place in which financial goods and services are offered for purchase by businesses and the public sector. Focusing on the sale of finished goods, it does not include trading in raw or other intermediate materials.

Related, but contrasting, terms are finacial market and labour market.

Product market regulation is a term for the placing of restrictions upon the operation of the product market. According to an OECD ranking in 1998, English-speaking and Nordic countries had the least-regulated product markets in the OECD. The least-regulated product markets were to be found in:

1. United Kingdom
2. Australia
3. United States
4. Canada
5. New Zealand
6. Denmark
7. Ireland

Evaluation of financial market

is a market in which people trade financial securities and derivatives such as futures and options at low transaction costs. Securities stocks and bonds and precious metals.

The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g., stock exchange and commdity exchange .This may be a physical location (like the NYSE, BSE LSE, JSEor an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange; still, vorporate actions (merger, spinoff) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange.

Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, similar to stock exchanges..

Types of financial markets

Within the financial sector, the term "financial markets" is often used to refer just to the markets that are used to raise finance: for long term finance, the Capital markets; for short term finance, the Money markets. Another common use of the term is as a catchall for all the markets in the financial sector, as per examples in the breakdown below.

• Capital markets which consist of:
  • Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.
  • Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof.
• Commodity markets, which facilitate the trading of commodities.
• Money markets, which provide short term debt financing and investment.
• Derivatives markets, which provide instruments for the management of financial risk.
• Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market.
• Foreign exchange markets, which facilitate the trading of foreign exchange.
• Cryptocurrency market which facilitate the trading of digital assets and financial technologies.
• Spot market
• Interbank lending market

The capital markets may also be divided into primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets allow investors to buy and sell existing securities. The transactions in primary markets exist between issuers and investors, while secondary market transactions exist among investors.

Liquidity is a crucial aspect of securities that are traded in secondary markets. Liquidity refers to the ease with which a security can be sold without a loss of value. Securities with an active secondary market mean that there are many buyers and sellers at a given point in time. Investors benefit from liquid securities because they can sell their assets whenever they want; an illiquid security may force the seller to get rid of their asset at a large discount.

Evaluation of financial information market

Data such as credit card numbers, credit ratings, account balances, and other monetary facts about a person or organization that are used in billing, credit assessment, loan transactions, and other financial activities. Financial information must be processed in order for business to be conducted, but it must also be carefully handled by businesses in order to ensure security for customers and to avoid the litigation and bad publicity that can stem from negligent or improper use.

Role of financial market in modern economy

• Intermediary functions: The intermediary functions of financial markets include the following:
  • Transfer of resources: Financial markets facilitate the transfer of real economic resources from lenders to ultimate borrowers.
  • Enhancing income: Financial markets allow lenders to earn interest or dividend on their surplus invisible funds, thus contributing to the enhancement of the individual and the national income.
  • Productive usage: Financial markets allow for the productive use of the funds borrowed. The enhancing the income and the gross national production.
  • Capital formation: Financial markets provide a channel through which new savings flow to aid capital formation of a country.
  • Price determination: Financial markets allow for the determination of price of the traded financial assets through the interaction of buyers and sellers. They provide a sign for the allocation of funds in the economy based on the demand and to the supply through the mechanism called price discovery process.
  • Sale mechanism: Financial markets provide a mechanism for selling of a financial asset by an investor so as to offer the benefit of marketability and liquidity of such assets.
  • Information: The activities of the participants in the financial market result in the generation and the consequent dissemination of information to the various segments of the market. So as to reduce the cost of transaction of financial assets.
• Financial Functions
  • Providing the borrower with funds so as to enable them to carry out their investment plans.
  • Providing the lenders with earning assets so as to enable them to earn wealth by deploying the assets in production debentures.
  • Providing liquidity in the market so as to facilitate trading of funds.
  • Providing liquidity to commercial bank
  • Facilitating credit creation
  • Promoting savings
  • Promoting investment
  • Facilitating balanced economic growth
  • Improving trading floors