Complexities of the U.S. Financial System Research Paper - 1

Complexities of the U.S. Financial System - Research Paper Example Therefore, one way in which the financial markets affect the economy is through determining the flow of both savings and investments into the economy, a pattern which in turn determines the rate of economic growth. Therefore, the financial markets offers an opportunity for savings that have been made by individuals and other business entities to re-enter the economy through the sale of shares, bonds and other financial securities, thus allowing the economy to have a consistent flow of money, which then promotes economic growth (World Financial Watch, 2014). Thus, when the financial markets are not operating smoothly, the economic growth is deterred. On the other hand, one way in which the financial markets affects businesses is through the provision of financial capitals for the business to invest further and grow (World Financial Watch, 2014). Different businesse entities convert their financial worth into shares, which are then listed on the stock market. Additionally, business can form different nature of securities and trade them in the stock and security markets, in order to raise capital for the further investment. In this respect, the financial markets determine the capacity of businesses to raise capital, which in turn determines the level of investment by businesses and the consequent profitability (Metcalf, 2014). In addition, whenever companies and businesses wants to raise money directly from the public, as opposed to raising it from the investors, the businesses issue their shares as Initial Public Offer (IPO) directly to the public, so that they can raise more capital, while making the businesses public entities. This way, the financial markets provides a platform through which private businesses can convert into public entities, while also providing the platform through which the willing and able members of public can own some stakes in some businesses and companies of their choice