Financial system of market economy, Evolution of financial...

Financial system of market economy

Role:

• mobilization of free cash resources of households and firms;

• the provision of investment resources - leads to faster economic growth, as the investment opportunities of agents expand;

• hedging of economic agents against financial risks.

Tools:

• securities (stocks and bonds of various types plus derivatives - securities for primary securities);

• shares in equity;

• accounts in financial institutions;

• plastic bank cards.

Agents (financial institutions):

• commercial banks;

• Non-banks:

- investment banks;

- institutional investors: pension funds (management companies); trust funds;

- credit unions;

- insurance companies;

- stock exchange and exchange agents (brokers);

- leasing companies

- financial consulting.

Incoming markets:

• The foreign exchange market;

• Securities market;

• insurance market;

• The credit market;

• market for registrars and settlement depositories;

• Pension Scope;

• The market of savings (personal investment).

Evolution of the financial system

In the development of financial systems of modern economies, four stages are distinguished.

In the first stage (until the 1960s), commercial banks act as the dominant, and often the only intermediary in the financial services market. This is the banking stage of the development of the financial system.

In the second stage (1960-1980s), as the industrial sector of the economy develops and complex organizational business structures develop, property is separated from control. In the economy, corporate ownership begins to prevail, the share capital comes to the fore as a source of financing for the investment activity of industrial and trading companies. Capital markets are beginning to play an increasingly prominent role in financial processes. The financial system is going through the stock stage.

The third stage (from the 1990's) comes with the introduction of advanced innovations in financial transactions, the mass dissemination of innovations in computer and telecommunications technologies. There is a securitization of the financial system: new financial products, complex derivatives are being developed. There comes a period of disintermediation - large companies can receive financing directly from the capital markets, without resorting to the services of financial intermediaries. Since the costs of financial transactions due to financial and technological innovations are sharply reduced, the advantages of specialized financial institutions are no longer important.

The era of mediators is reborn after the global financial crisis of 2008-2010. At present, we are present at the formation of the fourth stage of the evolution of the financial system. Financial systems of different countries cease to be independent of each other. A global financial system is emerging that requires centralized regulation and monitoring on a global scale. The crisis of 2008-2010. showed that neither companies, nor individual individuals, nor even individual governments, can maintain financial flows in a stable state independently, without financial intermediaries and without world control.

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