Interlinkage in the financial markets, Financial Management

Interlinkage in the Financial Markets - Common Features

The interlinkage present in the financial markets is essentially due to the fact that all these markets are in the process of assisting the flow of funds. Some of the important common features are:

Credit

One of the prime unifying factor of the various financial markets is credit. Since all markets provide credit, borrowers and lenders can switch from one market to another seeking the most favorable credit terms. Such shifting of borrowings from one market to another may take place to reduce the credit costs.

Speculation

Yet another common feature present in these markets relates to speculation. Investors in securities will get returns in the form of interest or capital gains in the long-term. Speculators in securities are always on the look out for speculative gains that can arise either due to certain market sensitive information or through their forecasts on certain future market developments. Such forecasts may be about interest rate movements, security prices, government policies, etc.

Arbitrage

Arbitrage is the other unifying factor of the financial markets. Arbitrageurs take advantage of the price differentials existing between the markets. When the prices of securities in one market appear to be out of line with the other markets, arbitrageurs switch over to that market offering the best of prices. Thus, arbitraging enables transfer of funds from one market to another.

In spite of such linkages, the guidelines regulating the various sub-markets in few economies, however, insulate them to a certain extent from the influence of the other markets. Contrary to these economies are the free economies where the financial markets are freely accessible.

 

Posted Date: 9/11/2012 3:13:24 AM | Location : United States







Related Discussions:- Interlinkage in the financial markets, Assignment Help, Ask Question on Interlinkage in the financial markets, Get Answer, Expert's Help, Interlinkage in the financial markets Discussions

Write discussion on Interlinkage in the financial markets
Your posts are moderated
Related Questions
V aluation Models A valuation model defines the exercise of applying financial and economic principles to estimate the value of an asset. Discounted cash flow valuation mod

In this exercise you will construct efficient portfolios with 5 risky assets using Excel's non-linear optimization routing "Solver". The questions are designed to be sequential and

What was the Second ground of criticism of traditional treatment Second ground of criticism of the traditional treatment was that focus was on financing problems of corporate e

Degree of Operating Leverage A measure of the firm's operating leverage, which is calculated as the contribution margin distributed by income before taxes. A rigid with a high

Explain the flow of goods and paper work in Diagram on Page 74 Ed. 10 [P. 70  in Ed. 9] of your textbook.  Explain a.  how the transaction would work without a Letter of Credi

What are the types of major types of finance companies? There are three main types of finance companies: a. Sales finance institutions which make loans to customers of a cer

Explain in brief about Financial management These tools help the manager to figure out which sources offer the lowest cost offunds and which activities will provide the greates

Can you describe what the payoffs from lookback options depend on? Can you write in a concise notation the payoff of a floating lookback call? a. What is the payoff of a portfol

Settlement Mechanism: Nifty index futures and option contracts are cash settled. All CMs are required to open a separate bank account with NSCCL designated clearing banks. T

Explain how Eurocurrency is created. Answer: The center of the international money market is the Eurocurrency market. A Eurocurrency is a time deposit of money in an internationa