Complexities of the U.S. Financial System - Essay Example

Complexities of the U.S. financial system Complexities of the U.S. financial system The financial markets of the U.S have been experiencing many changes after the financial crisis. However, it still plays a significant part and role in the economy. Several environment aspects of the in the past few years has been affected by the U.S financial market. One of the major impacts of U.S financial market on the economy is through the practise of mutual funds improvements. The U.S financial market practices the use of the mutual funds improvement to influence and change the prices in the economy resulting in a full range of change in the market prices.

The changes due to the use of the mutual funds in the market prices lead to a decrease in valuation which results to an increase in acquisition likelihood by 7%, relative to takeover possibility of 6%. The financial markets of an economy are affected by globalization since it reduces the cost of capital of a company. However, globalization has helped improve the way managers and heads of different departments in a firm govern and control leading to the reduction of the company’s cost of capital.

The reduction in the cost of capital is how the managers establish a good relationship with the stakeholders. The price of raising resources in capital markets is also another impact as a result of globalization. Improvements in globalization conditions have reduced U.S cost of capital. Individuals are also affected by the financial markets in one way or another. According to (Guaranteed Rate, 2011).A person would not be in any way affected by stock market crash if they did not invest in the stock market.

In case employers notice a fall in the stock market they automatically start reducing their employee’s benefits. These benefits can either be health insurance and retirement plans. The United States Federal Reserve plays a significant role in the country’s’ systems of expenditure. The Federal Reserve oversees the countrys economy along with the government but is not under the direct control of the government.In the United States the Federal Reserve is considered as the most powerful bank.

The major responsibilities of the Federal Reserve Bank are to deliver finance amenities to the federal government. Moreover, the Federal Reserve Bank also accepts deposits and offers loans to its clients. Another major task of the bank is to determine the interest rates for particular loans and the requirements of the bank reserve (Treasury, 2015).The chairman of the Federal Reserve Bank is also the head of the central banking systems in the United States. The chairman of the bank serves for a period of four years according to the agreement made by the U.S Senate. The chairman is usually designated by the president of the United States.

The Federal Reserve System is made up of seven board members. Unlike the chairman who serves for a term of years, the Federal Reserve Board of Governors serves for a term of fourteen years. The Federal Reserve Board of Governors takes the responsibility for the monetary policy (Melicher & Norton, 2013). The board of governors is responsible for ensuring that all activities of all the twelve Federal Reserve banks under its authority are well coordinated. An increase in the United States’ interest rates, it results in difficulties in obtaining loans because of the risk that the debtor might not pay the money back.

In order to solve and minimise the impacts of this risk the interest rates increase. People are less likely to risk seeking for loans due to the high rates of the interests. For instance, if an individual wanted to seek a loan from a bank to buy a house, it would be difficult to buy when the economic conditions are not favourable. The unfavourable economic conditions being a result of the high-interest rates. If the person opts to take the loan when the interest rates are high, their lifestyle expenditures and spending would be compromised because an increase in the interest rate would result in an increase in the dollar.

High interest rates also affect the countries that export goods to United States according to (Worldfinancialwatch.com, 2015).The impact of the exporting countries results from the decline in the demand for their products as an outcome of the high-interest rates.For instance, if the current economy of the United States is doing well and an individual travels to another country like South Africa, they would get several South African currency one U.S dollar. In the end, they will have more South African money even though at first they had less U.S money. References Guaranteed Rate, (2011).

How Does the Stock Market Affect You?| GuaranteedRate.com. Retrieved 16 April 2015, from https://www.guaranteedrate.com/news/stockmarketeffect Melicher, R. W., & Norton, E. A. (2013). Introduction to finance: markets, investments, and financial management. Wiley Global Education. Treasury, C. (2015). Corporate Finance and the Federal Reserve and U.S. Treasury - For Dummies. Dummies.com. Retrieved 16 April 2015, from http://www.dummies.com/how-to/content/corporate-finance-and-the-federal-reserve-and-us-t.

html Worldfinancialwatch.com, (2015). How Does The US Economy Affect The World Economy? | World Financial Watch. Retrieved 16 April 2015, from http://www.worldfinancialwatch.com/us-economy/how-does-the-us-economy-affect-the-world-economy