Essay on The Complexities of the U

Submitted By carlton42
Words: 1027
Pages: 5

The Complexities of the U.S. Financial System
SFC Carlton Hunter
Professor Ahmad Rawish
Principles of Finance
04 November 2014

The Complexities of the U.S. Financial System
As the world continues to evolve, it is becoming clearer and extremely harder to deny that the United States economy plays a vital in the everyday lives all American people, but other nations around the world.
The financial market impact the U.S. economy with its ability to raise capital, this happens through the buying, selling and or trading of debt securities, which goes toward supporting government projects across the United States. Funds from the financial market give the U.S. the flexibility to start and complete more projects during a given time, and it also helps with the nation’s debt, and lessens the amount of money the U.S. might need to borrow from other countries and in turn allow the U.S. to pay off its own debt.
The financial markets impact businesses through the use of equity securities and foreign exchange markets. Equity securities give “ownership rights in the form of common stocks that are initially sold and traded.” (Melicher & Norton 2011). Depending on the amount of gain a corporation is seeking to make it will either sell more stock to investors within the corporation or they can sell to the general public. The corporation has to sell at a specific rate whether it is to in-house investors or the public, and there is also a time limit. This method can help forecast future gains and losses of assets that will be key in future contracts. The Foreign exchange market works as a financial agent for businesses. When a business what to buy or sell products overseas, they are countries that use different forms of currency. The Foreign exchange market will handle the transfer of funds, the calculation of currency rates, and ensure the right amount of funds are attained or transferred for that particular transaction.
The mortgage market impacts individual through the different kinds loans that used by the banks to help people purchase homes or property, which falls under the primary market, banks that make these loans makes the a profit on the loans, they are paid directly to the bank. Banks can also collect on unpaid loans from the insurance policy it has against the loan. Because not all loans are paid off, lenders use the borrower’s credit report to help determine the ability of the person seeking the loan to pay money back to the bank. The credit report assist in determining the interest rate on the loan, and depending the number mortgage loans that go in default, it could have an effect on the housing market: house rate, buying and sell of homes, and even the building could slow down.
The primary role of the Federal Reserve to help prevent banks from going into debt. They give the banks a mandatory percent rate to maintain in their banks every day, make discount loans to banks in need of assistance, conduct audits and in some cases manage a banks transactions. During the bankruptcy of Lehman Brothers, the Federal Reserve created money market mutual fund facility (MMMF), which helped alleviate some of the market crash and banks going into debt due unpaid loans. “Emergency liquidity facilities helped to preserve market functioning in response to freezing of short-term credit markets after Lehman’s bankruptcy.” (Bump, Parkinson, Rosengren, Suarez, & Willen 2013). The Federal Reserve Chairman Job is to ensure all monetary policy are enforced, and though the chairman does work directly for the President or Congress he does given financial advice prior to making budget decisions that will affect the national budget. The Chairman of the Federal Reserve is expanding its scope to include all financial sectors that face a financial crisis. “The Federal Reserve’s role, increasingly turning the central bank into a sort of all-purpose guarantor of the financial system.” (Bump et al.,…