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The variety of functions of the financial market

Published:
July 21, 2020

The variety of functions of the financial market, at first glance, it may seem that the international financial market is very conservative, but if you look closely, you will understand that this is not so.

An analogy from anatomy is appropriate here. If the world economy is the whole body, then the financial market is its circulatory system, the network of arteries and veins that permeate all its parts and feed it with vitality.

In this article we will try to understand what functions the international financial market performs in the structure of the economy.

MAIN DIRECTIONS

So, what are the main functions of the financial market? He has two fundamental directions. Here they are:

General market. All components of the world economy are closely related to each other, and a change in one of them, one way or another, leads to changes in others, and the main connecting link here is finance.

The financial market of any country in the world is its integral part, it is he who connects together different sectors and industries, making the economy a single whole. This is the first and main function of the financial market – a connecting link.

Its general market functions provide the role of such a link.

Specific. The financial sector also has specific functions, because it is a separate part of the overall system, with its own rules, its own structure and its own characteristics.

This is where they make deals, buy and sell financial products. And these specific functions of the financial market precisely ensure its functioning as a separate segment of the economy.

So, we found out that the financial market has two main directions – ensuring the interaction of all sectors of the economy and independent functioning as a separate structure.

But it is important to understand that considering these directions in isolation from each other is possible only for ease of perception, because they are inextricably linked with each other. So let’s take a closer look at the general market functions.

GENERAL MARKET FUNCTIONS OF THE FINANCIAL SECTOR

This includes the following:

  • Mediation
  • Pricing
  • Regulation and control
  • Stimulation
  • Informatization

Let’s take a closer look at them.

Mediation. Its main goal is to create such conditions under which it is possible to fulfill the main task of any business – to make a profit.

The financial sector creates a universal environment, a platform in which different subjects of economic activity can conduct transactions – the purchase or sale of assets.

This creates an opportunity to receive income and this is perhaps the most important function of the financial market.

Pricing. Any product, any service and product have a certain value expressed in numerical form as a value.

Estimation of the cost of goods is based on the analysis of supply and demand (in a market economy). Thus, the price is determined based on their ratio – which of these dominates, and to what extent.

Without this, effective interaction between different sectors of the economy is also impossible.

Control and regulation. Competition and struggle for the consumer are driving the development of all sectors of the economy. Of course, the competitive environment needs to be regulated somehow, and this is another function of the financial market.

The goal is to create clear and understandable rules for the game of all market participants, establish interaction mechanisms, and make the pricing process fair.

In a word, create a set of rules that are binding on all market participants. In addition to purely financial regulatory mechanisms, there is also state control.

Stimulation. This is another function that is designed to ensure the growth and development of market participants and to help them get the job done efficiently.

Ultimately, incentives have a positive effect on the overall economic environment.

Informatization. Its main goal is to convey to market players important information about the products and services available, transactions and the cost of a particular product.

Together, this affects the formation of favorable conditions for the development of any type of business.

VARIETY OF FUNCTIONS. SPECIFICATIONS

As we have already noted, the financial sector is a separate element of the overall economic system. One of its most important specific functions is the redistribution of capital and monetary resources.

The rest of the specific functions are auxiliary and serve to perform this main task – redistribution.

The accounting department of the company must compile quarterly, annual financial reports and provide declarations to the tax service. Contact us for more information.

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