Creating Liquidity For Enterprises: Understanding Financial Markets Vital Role

Financial markets play a critical role in mobilizing savings and in allocating them to productive in

F inancial markets play a vital role in facilitating the smooth operation of capitalist economies by allocating resources and creating liquidity for businesses and entrepreneurs. The markets make it easy for buyers and sellers to trade their financial holdings. Financial markets create securities products that provide a return for those with excess funds (investors/ lenders) and make these funds available to those needing additional money (borrowers). Financial markets are created when people buy and sell financial instruments, including equities, bonds, currencies, and derivatives. Financial markets rely heavily on informational transparency to ensure that the markets set prices that are efficient and appropriate. Financial markets also provide a more stable source of financing for the public and the private sectors, insulating them to some extent against volatile global capital flows. In several industrial countries, such as the United States and the United Kingdom, financial markets over the past decade have substantially improved economic performance, through the development of a wide array of products that allow for a more efficient allocation of savings. This rapid financial development has helped boost growth in both countries. “Simply put, financial markets provide finances for companies so they can hire, invest and grow. Henri Kouam, a Public Policy Expert at Cameroon Economic Policy Institute affirms citing the example of Apple which he said started in a garage in California. While it had some great ideas, it needed money to grow, the company borrowed USD 100 million from the financial market after some years and its today worth hundreds of billions of dollars and employing over 100,000 people. The financial market, is not only advantageous to companies but also to investors. As Kouam posits, financial markets are very important for investors. In 2022 financial year for example, companies listed on the...

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