Impact of Financial Markets on Economic Activity in the First Decade of the 21st Century

Running head: GLOBAL BUSINESS ENVIRONMENT
Global Business Environment
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1GLOBAL BUSINESS ENVIRONMENT
Table of Contents
1. Introduction:................................................................................................................................2
2. Analysis:......................................................................................................................................2
2.1 Impact of financial markets on economic activity in the first decade of the 21st century:....2
2.2 Discussion of whether the new financial products increase the risk of a financial crisis in
2008:............................................................................................................................................4
3. Conclusion:..................................................................................................................................6
4. Recommendations:......................................................................................................................6
References:......................................................................................................................................8

2GLOBAL BUSINESS ENVIRONMENT
1. Introduction:
Over the years, it has been observed that the financial markets play a significant role in
economic growth; however, it could be one of the causes behind the financial crisis as well. The
current report would focus on analysing the impact of financial markets on economic activity in
the initial decade of the 21st century. The second section would elaborate on finding out whether
the new financial products raised the risk of financial crisis in 2008. Finally, the report would
shed light on providing recommendations for minimising the likelihood of probable banking
crisis in future.
2. Analysis:
2.1 Impact of financial markets on economic activity in the first decade of the 21st century:
The financial system includes all financial instruments, markets and institutions. It could
be said that the financial markets have impact on economic activity, which would be supported
by a number of evidences. The financial markets have their own comparative benefits. An
effectively-designed financial system needs to enhance the efficacy of financing decisions
favouring sound assignment of resources and ultimately, economic growth. For certain industries
at particular times of their development, market-based financing is deemed to be advantageous
(Aalbers 2016).
For instance, funding via stock markets is optimal for sectors, in which there have been
significant technological advancements and there is minimum consensus on the ways of
managing organisations. The share market checks whether the view of the managers on the
production of an organisation is suitable or not. For other industries, bank-based financing is