The growth of financial markets trading has been substantial over the past two decades. In the main this has been due to increased deregulation of the financial services coupled with the improvements in technology.
These developments have led to an improved understanding of financial risk as well as an improved ability to deal with it. This surge in the number of transactions has led the participants to institute their own self-regulatory policies, in addition to those imposed by the government.
Functions of Markets
Markets are operating environments in which goods and services can be bought and sold. The operation of a financial market involves borrowing (buying) and lending (selling).
Bringing buyers/sellers, and lenders/borrowers to a central market place provides:
- Price discovery
- Liquidity
- The ability to offset risk
- Efficient resource allocation
For OTC financial products, the market venue is not a single facility. It is a network of relationships and communication links. For exchange-traded financial products, the market venue is a physical or electronic exchange facility, typically with Business Rules that define the relationships and products.
Financial markets products afford participants the opportunity to structure transactions to satisfy specific requirements, at reasonable prices. Financial markets products also act as a conduit for efficient allocation of financial risks. This risk allocation is fundamental to both the stability of the financial system, and to the economy as a whole.
Evolution of Financial Markets Products and Services
Financial markets products evolved as end-users needs to tailor their financial products increased. They came into prominence during the 1980s. In Australia, this coincided with the deregulation of the financial system, and with the entry of new foreign banks.
Prior to 1980, OTC products in Australia were largely limited to trading in bank bills, cash and some forms of foreign exchange. Bills were drawn to meet borrowers' exact cash flow requirements, in terms of both value and date. These bank bills were soon being sold to investors. Since those early days, the turnover in OTC products has grown exponentially.
Concurrently, exchange traded products have developed rapidly. The Sydney futures exchange has developed from a largely commodity-based exchange to a major provider of interest rate derivatives. Similarly, Australian Stock Exchange Futures has responded to demand by offering equity and electricity derivatives. This increase in the turnover and diversity of financial markets products and services has been driven by both supply-side and demand-side factors. Demand for products has increased for a number of reasons, including:
- Technical advances enabling users to better analyse and understand their financial risk
- Recognition of financial risk as a discrete element of business, flowing from the inflationary environment of the 70s and 80s, and from the lower levels of government intervention
- Globalisation flowing from improvements in communication, computing and transport
- Legislative imposition of mandatory superannuation
From a supply side, growth has been driven by both improvements in technology and by increased participation . The factors that led to this were:
- Growth in the number and diversity of non-bank financial organisations
- A move away from government ownership of financial institutions and other assets
- Technical advances in recording, processing and disseminating information
- More effective and secure means of communication
Learn more about how the Forex market operates and how you can be apart of it!
2 comments:
Trade Foreign Currencies and earn profit through online forex sell. Contact YaMarkets now to start earning today.
Post a Comment