Importance Of Financial Market In Pakistan

The Country I have chosen is Pakistan.

A financial market is a market in which people and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods. The State Bank of Pakistan is the major regulatory body of banks in Pakistan. (htt1)

The key financial markets of Pakistan are bond market, money market and equity market.

Bond market is a market in which bonds are traded before their maturity date. Bonds are debt securities which are issued by the corporations to the investors. Similarly, money market is a market in which financial instruments with

The major reason behind this was the high interest rates. Whenever the interest rate in an economy is high, the demand for Treasury bills fall and consequently its prices fall as well. This is why, the Treasury bill rates at the end of 2001 were on its way towards decline. According to the graph, treasury bills rates show minor fluctuations and positive trend from 2004 till the mid of 2011. However, T-bill rates have showed a declining and a constant trend in the recent years. It must be because of the poor economic conditions of Pakistan. The businesses in Pakistan were at great stakes. They were forced to close down due to the shortage of gas, electricity, high cost etc. Whenever the business are unable to expand, the demand for Treasury bills fall and their rates tend to decline as well. The monetary policy in the recent years has also been very strict for Treasury bills to show a positive trend. Another prominent factor to determine Treasury bill rates is inflation. Inflation and inflation expectations also are factors in determining interest rates–for example, periods of relatively high (low) rates of inflation usually are associated with relatively high (low) interest rates on T-bills (see chart,

From the year 2000 till 2001 the interest rate increased from 11%to 14%. However from then onwards till 2005 there was a sharp decrease in the interest rates which lowered down to around 7%. It was decreased so that supply of money in the market increases. The people were encouraged to borrow money from banks and invest them in different purposes. Similarly, the Government also wanted the firms to take loans and expand their business operations in order to ensure economic growth. In the subsequent years there was initially a slow growth in the interest rates till 2008 after which they rapidly increased to 15% by 2009 when IMF forced the Pakistani Government to remove the subsidies given to various firms. As a result of this, the prices of commodities increased which increased the cost of production and the average price level in Pakistan. Due to inflation, the interest rates had to increase. From 2009 till 2014, thereafter, there was an overall decreasing trend till 2014 with skirmishes on increase in 2011 and