# Chapter 1, Problem 1LO

### Economics of Money, Banking and Fi...

4th Edition
Frederic S. Mishkin
ISBN: 9780133859805

Chapter
Section

### Economics of Money, Banking and Fi...

4th Edition
Frederic S. Mishkin
ISBN: 9780133859805
To determine

The importance of financial markets in the economy

Concept Introduction:

Financial Market - It is a market where we trade financial instruments. Equity, derivatives, bonds and shares are the examples of instruments used in this market.

Explanation

Financial market plays an important role in the development and growth of the economy. A strong financial market will lead to a robust financial system and thus formalization of economic activities. Financial market is also important because it generates credit in the economy and helps to boost the businesses in terms of funding.

Financial market also helps in maintaining optimal saving-investment relationship. A country needs more investment to be on the path of economic development. This can happen when savings are channelized through productive resources in the form of investment. Financial system also helps in the development of trade. It also helps in fiscal discipline so as to stop inflation and depression from reaching the extreme levels.

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