Complexities of the US Financial System, Research Paper Example

Financial Markets

The United States financial market is a broad market that is made up of different and separate market segment. In these separate markets, financial products and services are offered on a range of trading platforms and exchanges. The different products traded in these market segments include fixed-income securities, foreign exchange, equities, and derivatives. This section discusses the impact of the United States financial market to the economy, business, and individuals.

Impact of United States Financial market to the economy

The United States financial market is one of the most developed and efficiently operating financial markets in the world. For that reason, it has a great impact to the economy. The U.S financial market has greatly affected the growth of the U.S. economy. As the financial market continues to expand, the U.S economy continues to expand. For instance, a stable exchange rate in the U.S. financial market has facilitated smooth exportation and importation of products in and out of the currently hence leading to efficient trade with other countries. Improved trade boosts the GDP, which in turn leads to economic growth.

Impact of United States financial market to the businesses

The U.S, financial market, specifically the stock and equity market determines the performance of businesses financially. The stock and equity market is one of the major sources of raising money to a business. Therefore, owing to the strong performance of the U.S financial market, businesses have continued to expand considerably because they have adequate capital.

Impact of the U.S financial market to Individuals

The U.S. Stock and equity market also act as a source of individuals to raise money. Individuals who trade in the stock market often earn considerable amount of money. For that reason, the U.S. financial market has acted as a source of revenue to individuals.

U.S. Federal Reserve

The Role of U.S. Federal Reserve and Federal Reserve Chairman, and Federal Reserve Board

The U.S. Federal Reserve system plays a vital role in combating adverse economic developments such unemployment, inflation, and supply of money. On the other hand, the Federal Research Chairman role involves observing and reporting to Congress annually on the activities of the Federal Reserve and the country’s monetary policy. Additionally, it is the duty of the chairperson to testify before Congress on various other financial issues. Conversely, the Federal Reserve Board plays a vital role in the supervising and regulating the U.S. banking system.

 Interest rates

Two ways interest rates influence the U.S

Interest rate changes may have a positive effect or a negative effect. For instance, a decrease in interest rates often encourages investment in the economy. On the other hand, increased investment will increase output growth through the multiplier process that increases the growth of U.S economy. Higher interest rate, on the other hand, increases the cost of borrowing, thus, and discourages people from borrowing. Hence, individuals cannot borrow for investment purposes. In such cases, the U.S economy experiences less economic growth. In the United States was the economic recession of 2007 that saw the reduction in demand for goods and services in the economy.

Effect of high interest rates on global financial environments

The very low interest rate has been associated with high-risk taking hence leading to lack of financial liquidity in the financial sector. In regards to that, the financial markets of the economies that are affected by the low interest rates are likely to crash. Secondly, low interest rate increase the risk of investing in real estates, hence affecting the stock exchange market negatively. A good example of the global financial crisis was the financial recession of 2007 that affected almost all economies in the world.