Question

Explain the link between well-performing financial markets and economic growth. Name one channel through which financial markets might affect economic growth and poverty

Short answer

Spillover effect the economic growth and poverty of a nation

Step-by-step solution

Step 1. Introduction

Financial markets can be defined as market systems where financial services are provided and the exchange of financial securities takes place. This market acts as a medium for borrowers who need funds and lenders who have excess funds.

Step 2. Explanation

Financial markets that are doing well allow capital to be channeled to the most efficient uses possible. It will stimulate growth if funds are used in the most effective way possible. A high rate of growth has an impact on all aspects of the economy and, as a result of spillover effects, reduces poverty.