Discuss the primary purpose of financial markets in respect to financial instruments and institutions.

The Primary Purpose Of Financial Markets. Borrowers and lenders of funds use financial markets for buying necessary goods or for saving. Borrowers (or deficit units) require funds and this is provided by lenders (or surplus units). Generally deficit units will require large amounts of funding for buying goods such as cars or houses, however most surplus units will not have enough money to lend out to them standalone. Because of this, a financial institution is …

…plays a role in facilitating the flow of funds in a corporation by allowing a change in the debt to equity ratio. In comparison to the above example, debt can be viewed as deficit units and equity can be viewed as surplus units. As can be seen in the above examples through the use of financial institutions and instruments, the facilitation of the flow of funds is by far the primary purpose of financial markets.