Roles Played by the Financial Market
Financial market performs many functions and fulfils many roles in Australia and other countries. These are the roles played by financial market:
Mobilising funds by gathering and moving money from the surplus units who have surplus funds, to the deficit units who need to borrow money. Funds are channeled to businesses that need it to pay for operating expenses or purpose of consumption or investment. (Beal 2007, p. 61)
Commercial activities and transactions are efficient because financial market facilitate the production and transaction in exchange for money by reducing the cost of transaction and information. (Beal 2007, p. 61)
Individuals’ savings can be managed and allocated properly and the savings can be used productively for consumption at a later time. (Viney 2010, p. 9)
Assisting participants to make investment decisions that manage to balance the risk and reward that meet their goals for returns and cash, according to their risk tolerance and investment horizon. (Beal 2007, p. 61)
Sellers and buyers can decide the quantity of securities to be traded at prices set in financial market for both newly issued and existing assets. (Hicks & Wheller, p. 29)
Different maturity, risk, liquidity and cash flow patterns are considered in the process of structuring portfolio. Therefore, more investment alternatives can be offered to meet each participant’s needs. (Viney 2010, p. 8)
Match the use of funds and source of funds by sticking to the matching principles. There are short-term and long-term assets and liabilities. Therefore, the markets have to determine which assets should be funded in which liabilities where the life of cash flows can be matched. (Viney 2010, p. 12)
According to Viney (2009), financial market can be defined into few categories where each of them have different structure, such as the primary and secondary markets, the money and capital markets.
Viney (2009) states that the primary market is a market where financial assets are
Mobilising funds by gathering and moving money from the surplus units who have surplus funds, to the deficit units who need to borrow money. Funds are channeled to businesses that need it to pay for operating expenses or purpose of consumption or investment. (Beal 2007, p. 61)
Commercial activities and transactions are efficient because financial market facilitate the production and transaction in exchange for money by reducing the cost of transaction and information. (Beal 2007, p. 61)
Individuals’ savings can be managed and allocated properly and the savings can be used productively for consumption at a later time. (Viney 2010, p. 9)
Assisting participants to make investment decisions that manage to balance the risk and reward that meet their goals for returns and cash, according to their risk tolerance and investment horizon. (Beal 2007, p. 61)
Sellers and buyers can decide the quantity of securities to be traded at prices set in financial market for both newly issued and existing assets. (Hicks & Wheller, p. 29)
Different maturity, risk, liquidity and cash flow patterns are considered in the process of structuring portfolio. Therefore, more investment alternatives can be offered to meet each participant’s needs. (Viney 2010, p. 8)
Match the use of funds and source of funds by sticking to the matching principles. There are short-term and long-term assets and liabilities. Therefore, the markets have to determine which assets should be funded in which liabilities where the life of cash flows can be matched. (Viney 2010, p. 12)
According to Viney (2009), financial market can be defined into few categories where each of them have different structure, such as the primary and secondary markets, the money and capital markets.
Viney (2009) states that the primary market is a market where financial assets are