Role of Financial Markets in a Global Economy and the Concept of Uncertainty

Abstract

Despite the fact that the ‘Great Recession’ may have ended, a common unusual process has soon followed across most of the highly developed economies across the globe. This is the process of restoring balance sheets in both the private as well as the public institutions. The manner in which this kind of deleveraging will develop or the duration it will last is still not very clear. Due to this form of deleveraging, the global recovery has been held back in addition to the fact that most of the individual economies across the globe are suffering heavily as a result of this (Valdez, 2000). When it comes to the euro region, there is much stagnation as the area struggles to come in terms with the primary crisis of balance-of-payment (Rengasamy, 2012). On the other hand, the United States has the issue of fiscal cliff to handle and this has had a great impact on its general economy (Suderman, 2013). China which has also experienced immense growth in the past has been forced to come in terms with the reduction in demand for its key products that it relies on as export. Finally, other emerging markets across the globe are also fighting so as to ensure a continuous growth of their economies despite the fact that there has been generally a decrease in demand as far as their exports are concerned (Wolf, 2009). This great uncertainty among different economies across the globe has created what is now being referred to as ‘global economy of uncertainty’. It is important to note that in this global economy of uncertainty, financial markets have a great role to play as it shall be explained in this paper. The role played by these financial markets has been generally categorized as; intermediary functions, economic functions and the financial functions (John, 2007; Berg, 2010; Copeland, 2005; Fabozzi, 2002). These key categories of financial market functions clearly show the major role played by these markets as far as the global economy of uncertainty is concerned.