Financial Markets and Institutions Assignment February 2015

Financial Markets and Institutions February 2015 - appellation Exampleging in the discussion, it is important to note that the role of the central bank and the extent of its involvement whitethorn vary according to the presence of different stakeholders and varying legislations. For instance, the US central bank does not order the pecuniary sector while on the other hand other governmental parts postulate to approve the intervention measures of Japans central bank. This paper outlines the importance of publications of the central bank and related to forecasts of the macroeconomic trends of an economy. The paper shows that information and views of the central bank are important to stakeholders such as forecast agencies and market players.Different economists agree that the pivotal role of the central bank is macroeconomic stabilization. The macroeconomic stabilization role involves the central bank keeping in check the exchange rate, price levels, and payment systems in the i nternal market. Overdependence on business cycles as well as operations of multinational enterprises in the domestic market may pose a serious financial threat to an economy. These factors may distort prices, including outside exchange rates and interest rates, which can create insolvency, severe fluctuations, and disruption of the domestic economy. For an economy to happen upon economic development there has to be financial stability otherwise, the economy will become fragile, concentrate agents confidence, and cause moral hazards.The lack of financial stability leads to borrowers obtaining lower wealth than mean(prenominal) proceeds from an investment project. On the other hand, low agent confidence and the unpredictability of future trends may bore higher agency costs and undermine the performance of the investment sector. Driffill et al (2003) agree that financial stability and monetary policy go hand in hand. Driffill et al (2003) base this argument on the fact that the act ivities of the central bank aim at stabilising price fluctuations and smoothing interest rates, which is