Financial markets play an important role in directing economic capital in the production and industrial sector and help as a mediator in economic growth and development. Business improvement is one of the most important indicators in economic growth. As a result, the financial market and its application causes economic growth in various governmental and industrial fields. Investment plays an important role in economic growth. In economic science, capital is the most important factor determining economic growth and development.
Classification of Financial Markets
1. Classification Based on the Nature of the Financial Right
2. Classification Based on Receipt of Financial Right
3. Classification Based on Release Stage
4. Classification Based on Immediate Assignment
Features of The Financial Market
1. According to the Mood of the Participants
In the financial market, participants are divided into three categories based on their mood. Risk-Taking, Risk-Averse, Conventional. People with a Risk-Averse spirit try to work in institutions that will pay them a specific profit at the appointed time. However, if the interest rate is lower compared to the expected interest of other institutions. Risk-Averse people work with institutions that expect high returns in return for taking risks.
Ordinary people are affected by the market situation and do not have a specific orientation. Risk-Taking applicants go to financial intermediaries who help the economic enterprise bear the risks. Risk-taking people are interested in certain transactions and prefer to take all the profits themselves by accepting the risks. The financial system should respond to the moods and needs of customers by designing institutions.
2. Alignment with The Goals and Motivations of the Participants
A successful financial system should pay attention to the goals and motivations of the participants in order to attract the attention of the participants to participation. These goals and motivations are different for different people.
3. Compatibility with Financial Markets
One of the main concerns of the financial market is adapting to the culture and goals of domestic participants. However, due to the progress of financial markets at the international level and the increase of trans-territorial communications, we have to face a change of approach in this field. In the use of tools and capabilities, we must act in such a way that in the field of supply and demand, when needed, we can trade with international financial markets, and especially with Islamic countries.
4. Harmony with the Common Culture of the Society
The financial system and its subsidiary institutions must be in line with the general culture of the society. This need and conformity is felt most of all in relation to religious beliefs. Any performance contrary to this lacks stability and is removed from the exchange round.
Advantages of Financial Markets
1. The proper functioning of the financial market has a positive effect on macroeconomic variables.
2. The financial market collects funds for investment and by meeting the needs of the entrepreneur, it helps the commercialization of the idea and becomes an incentive to attract investors in the capital market.
3. New information is created in the field of investment opportunities in the financial market.
4. One of the most important effective roles of the financial market is publicizing information, encouraging successful companies and punishing companies that have suffered losses, which is much more effective than monitoring systems. The asymmetry that exists in the financial market makes lending institutions not have enough information about the quality of the borrower’s company. The role of the financial market is effective in reducing market failures in the loan and credit sector.
5. Financial markets share investment risk. If investors are forced to invest in projects, the power of diversification will decrease. Liquidity and the possibility of buying a diverse portfolio in the stock market provide these conditions so that investors are safe from the company’s risk.
Duties of the Financial Market
1. The financial market is responsible for evaluating the managers of companies and projects.
2. Financial intermediaries and participants in the market provide the basis for managing and controlling the company of managers.
3. The financial system facilitates trade and exchange.
4. The financial system prices the risk and is in charge of the integration and control mechanism.
Up To Sum
In the end, we can say that the financial market is one of the important keys to achieve economic growth. The financial market causes economic growth if it can increase capital efficiency.