In a global market when one country goes through an economic recession it can have drastic effects on the rest of the world. When the United States had a financial melt down it affect every country around the world. The financial crisis hurt the value of the dollar and it affect the way we trade and do business around the world. The financial institution that is having the greatest effect on our economic condition is the Investment Banks. Investment Banks are the Commercial side and involve underwriting issues of debt and equity, Mergers and Acquisitions, and corporate restructuring or advisement. Investment Banks directly effect how business are created and expand. Investment Banks help businesses grow and be profitable in the global market, they give out loans for businesses to get started and they also help merge businesses together to become more profitable. When Investment Banks don’t lend out money to start business or invest in other markets it potentially puts the entire economy and global business on hold. At the same time Investment Banks can help the US and Europe get out of this financial crisis. When an Investment bank lends money and invests in global markets it creates trade and new jobs for people. The more trading that is going on the more money that is being made and global markets thrive.
I believe that future trends and financial markets that will expand in the near future are Money Markets. Money Markets, short-term debt instruments are issued by economic units that require short-term funds and are purchased by economic units that have excess short-term funds. Once issued money market instruments trade in secondary markets. Money Markets are needed because of the immediate cash needs of individuals, corporations and governments do not coincide with their receipts of cash. I think they will expand mainly because of their high rate of interest (return), they are very liquid, have low default risk and mature in one to two years. Since the stock market is still unpredictable people are going to want to invest safer knowing that their money won’t disappear over night. Although that the stock market has been slowly recovering I still believe it is going to be a while before it is back to full strength and people feel comfortable investing their money again. People’s hesitancy to invest in the stock market has partly to do with the Euro crisis going on and people fear that if the Euro goes down again their stock will lose value and they will lose money.
The financial crisis started in the US when banks started giving mortgages to people for houses that people couldn’t afford. Banks started to get greedy and weren’t checking credit scores as closely as they should. Then a few years later when the people with the mortgages that couldn’t pay them started to foreclose the banks weren’t getting the money that they paid for to help buy the house. Banks all over the country started losing tons of money because now the banks were buying back the houses and trying to sell them for anything to cut their loses. After a while the entire housing market crashed which caused many banks to go out of business. When the banks started doing bad the stock market took a huge hit and tons of stocks fell in value. With the stock market doing bad and banks going out of business people started losing jobs and had no way of paying for their bills making even more people foreclose on their house. Many people called it the “Housing bubble” and when the bubble popped it affected the entire country. One of the main reasons that the US wasn’t as badly affected as the Euro nations is because when the stock market fell and the dollar lost value it only affected the US at first, in the Euro zone there are many different countries that use the same currency so when one country fell into debt or financial trouble it dragged all the other nations in the Euro zone down with them. So instead of only one nation having its currency lose value the Euro zone had many countries currency lose value. When there are many countries involved it takes much more time to fix because there are so many variables.
This course has completely changed the way I look at financial markets. I have learned how each financial market works and what each one does. I have also learned how each financial market effects other markets in the world too. I am now a daily reader of the Wall Street Journal mostly because now I can understand what they are talking about and how decisions that are being made now can have a great affect on how the business world works tomorrow. I have also learned a little about how to invest in the stock market and what low-risk and high-risk investments are. Although this class was quick I felt I took a lot away from it and now have a better understanding of financial market and institutions.