These Are Unique Factors Tying All the Financial markets Together.

 

The financial market system has different segment that have a specific characteristics, these features are determined through the rules and regulation that guides them. In all these, when one segment is affected by interest rate and security price, other corner of the financial market will be affected, this shows that there are forces at work to tie all the parts of the financial markets together.

1. Speculation: Demanders and supplier of fund seeks profits through joining element such as speculation and arbitrage. Now speculators in securities are continually on the lookout for opportunities to profits from the forecasts of future market development.  However, speculators perform an important role in the financial market, they level out the prices of securities, they also buy securities that are underpriced and sell those they view as overpriced.

2. Arbitrage: This is the fund that are transferred from one market to another whenever the prices of securities in different markets are not in line with each other. Arbitrage is another amalgamating force in the financial markets that assist visitors who are seeking for profitable opportunities. Those visitors who transfers fund from one market to another when the securities in the different market are not rhyming are called the Arbitrageurs_ they assist to maintain constant price in the market and also helps buyers in finding the best prices.

                                         euromed.economists.org

3. Efficient and perfect market: many research have shown that financial markets are closely tied to one another due to their near perfection and efficiency, now what is perfect market_ this is the type of market in which the participates are price taker, the price of carrying out transaction in this type of market is zero. In perfect market there are no government restriction on goods and movement of funds. However, no financial market in today’s world is completely perfect, but some of them are close to being perfect.

On the other hand, there are no information in an efficient market, which might affect security prices or interest rates, that is wasted, the efficient market, provides people with information which helps them to gain profits, that’s why efficient market is simply a competitive market in which the prices of financial instruments are traded there fully which reflects all the latest information available.

4. Credit (the common commodity): Credit is the basic commodity being sold in the financial market, it is one of the factor tying the financial market together, this help the buyer to switch from one market to another looking for the most favorable credits terms for their businesses.  The process of moving from one market to another seeking for favorable credit term helped to tie the financial market together.

Meanwhile, leave a message in the comment section, if you have a question.

 

 

 

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