What is a financial market?
A financial market is a spectrum term which means a marketplace casroannual.org buyers and sellers trade in assets in the form of stock, currencies and derivatives. The demand and supply forces determine the price of these assets.
Depending on what is traded, there are mainly two types of financial markets:
1. Capital market – where securities like bonds, stock, etc. are traded. They are for long-term investment.
2. Money market – where high-liquidity items like US Treasury bills, currencies, etc. are traded. They are for short-term investment with equal chances of big gains and big losses.
Why is financial market important?
The financial markets mobilize domestic savings and foreign capital for productive investments. The economic growth of any country depends on the efficiency of its financial markets. An ineffective financial market would mean that you are not exploiting all opportunities and an inefficient one will cripple you and not let you compete on a global scale.
Its level of sophistication:
• Encourages Foreign Direct Investment (FDI)
• Allows domestic corporations to raise funds for growth and expansion
GCC Market Structure Overview
Developing their financial markets has been a priority for GCC since 2002. Their vision has mainly been to promote the development of local marketplaces like UAE market structure and Kuwait market structure, and to make the GCC countries a financial hub in the region. With the oil prices dropping and the depletion of the oil reserves, the GCC region has no choice but to diversify its economy for a sustainable growth.
Current GCC Market Structure
The Saudi Arabia market structure, though solid (none of the banks collapsed in the aftermath of the Global Financial Crisis in 2008-09), still lacks sophistication. Most domestic companies even now use their retained earnings or traditional bank loans to finance their growth activities. When compared to their Asian and Latin America counterparts, the region forms only 0.8% of the global capital volume says a Deutsch Bank report.
The share of GCC countries is even lower with only 1% says an IMF report. The weak share of the UAE market structure is due to the government’s heavy engagement in the economic activities and the weak private sector.