The Emergence of the Global Financial Markets

The world’s financial markets date back to the 17^th century, having emerged in the city of Amsterdam, Netherlands. However, they saw the most growth and development after the industrial revolution that led to the appearance of joint stock companies.

The most famous markets in the economic history were in the cities of Venice and Genoa in Italy, as well as the Frankfurt market in Germany, which was traded mostly through bills of exchange and precious metals. These markets were associated with the Middle East, Far East and Europe, and appeared after the emergence of the industrial revolution and the development of economic thought, as well as an increased desire for individual investments. Thus, various companies appeared which allowed individuals to contribute to their ownership in order to ensure stability and growth.

In this article, we are going to talk about what we consider to be the most important functions of the financial markets, which play a very big role in supporting the economy of the state.

Directing savings to the benefit of the national economy

Small investors who cannot finance their projects usually buy as many securities as they can afford. This helps reduce inflation. The financial markets help to transfer funds from lenders to borrowers. Lenders are reducing their consumption in order to get higher incomes in the future, when they get the money back from the borrowers, plus a small fee. Borrowers use the funds daily to trade in the financial markets. All this assists in economy growth, and general well-being of a state.

Contributing to the financing of development projects and plans

It is not uncommon to see large companies or even countries issuing bonds – practically borrowing money from the people in order to finance development projects. Usually the issuer of these bonds agrees to pay to the creditor a certain sum every year and is obligated to pay them interest. Issuing bonds helps the economy of a country by providing it with the financing it needs to sustain projects.

Contributions to individuals and companies

Financial markets help traders gain wealth and increase their portfolios. The more people invest, the more capital the economy of a country has, which ultimately aids in economic growth. From a company’s perspective, the financial markets are a very good indicator of the what public opinion on them is. The number of shares and their price is a good indicator on the performance of a company. Often times, a decline in the number of shares means that the company is on a down trend, and leads to a change in its policy in order to improve its financial position.

There are many international markets out there, but what are the most performing ones? Here are some that we consider to be the most powerful, playing a major role in shaping the global economy:

• The US Financial market (NYSE) is considered by most to be the most powerful international financial markets in terms of the volume of capital traded. The importance of the USD, being the currency used in NYSE, and also its top position in the world’s monetary system make this financial market extremely strong.
• The London Stock Exchange (LSE) is the most important financial market in Europe, and the second largest market in the world after the New York Stock Exchange. What makes it different than other Europe based exchanges is the strong expertise in financial transactions, its stability, and last but not least, the low taxes on stock market profits.
• The Tokyo Stock Exchange (TSE), the Japanese market, is the third largest exchange after NYSE and LSE, and dates back to 1878. The most distinctive features of the TSE are the diversity of instruments and investment sources, low risks, openness to the acceptance and trading of securities of foreign companies, and its high liquidity.
• The Paris Stock Exchange is the largest market in France. It gained considerable importance during the second half of the 20^th century as a result of high economic growth and capital accumulation within France.
• The Cairo Stock Exchange is considered one of the most important Arab exchanges, being the oldest and most active trading market in the Arab world.

Nowadays there are plenty of ways for investors to distribute their capital, and the financial markets represent one of the most important ones. It is crucial to understand how they work and how you can use them in your advantage. We always recommend knowing the ins and outs of any potential investing prior to deploying it. Time spent learning is time wisely invested.