Improvement of Economic Efficiency - Essay Example

The financial markets facilitate the connection between well-developed financial institutions and the borrowers who want to invest more than they earn, which suits the needs of the savers and borrowers; hence, improves the efficiency of the overall economy.
Financial markets form one of the financial systems that perform an important economic function by providing a channel of funds from the savers to the spenders or the borrowers that contribute to economic efficiency. Savers use less money than their income while borrowers who wish to spend use more money than their income, which ensures that borrower who wants to invest can undertake an investment despite less income by selling bonds to the savers (Mishkin, 2012).

The financial market is closely regulated promoting safety in the fund channeling from the savers to the borrowers encouraging a large number of institutions to the markets because they feel secure increasing efficiency in the financial markets. Consequently, increased security in the financial markets translates to overall economic efficiency. Additionally, financial markets improve consumers’ well-being because it allows them to schedule and time purchases better, which contributes towards the overall economic efficiency in a country and from a global perspective.

2. Types of financial markets in Qatar
Qatar has various types of financial markets that have promoted its economic development. Financial markets in Qatar include:
i. Capital markets trade long-term securities in which the institutions as well as the individuals trade financial securities (Bacha & Mirakhor, 2013). The capital markets ensure that financial resources are equally distributed across Qatar. They include
a. Stock markets use stock securities to enable an investor to buy and sell shares belonging to a publicly traded firm.
b. Bond markets that involve a debt investment in which an entity borrows money from an investor.
ii. Foreign exchange markets that involve the trading of currencies characterize by high volatility
iii. Money markets provide short-term financing and trade financial instruments with high liquidity
iv. Derivatives markets that redistribute diversified risks
v. Commodity markets, which provide an opportunity for trading commodities in Qatar, for example, oil commodity that is a major commodity in Qatar.

Several securities are traded in Qatar’s financial markets including Sukuk or Islamic bonds, shares/common stock, commodities, derivatives, and currencies. Islamic bonds are bonds that are not meant for conventional interests but help in the development of innovative assets that comply with Islamic law. Oil and gas are the main commodities in Qatar’s commodity market.
The outlined Qatar’s financial markets have various roles in Qatar’s economy including:
a) Mobilization of Savings: The financial markets provide an effective strategy that mobilizes savings attracting various investors and small savers who focus on shares and bond acquisition.
b) Diversified and broad platform of investment: Financial markets such as the stock exchange offer a wider investment opportunity that leads to economic development in Qatar. Various companies offer diversified types of securities; hence, suit the various intentions and objectives of the different investors promoting the overall well-being of the people of Qatar and economic development.
c) Capital Formation promotion: Capital markets in Qatar promote the mobilization of funds that are then directed towards the continuous production of goods and services useful to the citizens leading to capital formation towards national assets; hence improving the economy.
d) National growth: Stock exchanges facilitate the government’s efforts in collecting funds for public utilities and undertakings. These funds are used to undertake various projects such as power projects, telecommunication, and transport infrastructures, which facilitate Qatar’s economy. Additionally, stock exchanges are responsible for the provision of liquidity and price continuity, which form the basis of Qatar’s government securities evaluation.
e) Growth of entrepreneurship: Financial markets promotes the generation of investment ideas by various individuals irrespective of age or class, which promotes continuous business innovations across Qatar leading to a growth in its economy (Kovessy, 2014). Read More