Financial markets are made up of economic agents. Without these actors, the market wouldn't exist in the first instance. The need for them arises because of those with surplus or deficit funds. As a result, a better understanding of market actors will give you a foundation knowledge of banking and finance.
1. What's economic agents
An economic agent is an actor in the financial market that is involved in making decisions regarding consumption, production, and exchange. These actors are involved in the market in one way or the other. They have funds to either buy consumable items such as food, clothing, shelter and health. More so, they can save or invest excess funds. Other economic agents lack funds for consumption, production, or exchange. These agents resolved their issue by borrowing from those with surplus. To do this, the financial market provides the means of satisfying deficit actors.
2. Types of economic agents
There are mainly three types of economic agents. These are households, firms, and governments.
2.1 Household
These include individuals and family heads. They provide for themselves and their family. These actors need funds to meet their daily basic needs. The surplus agents here save their money or invest them in businesses, shares, and bonds. However, the deficit actors borrow money to meet their basic and/or ostentatious needs. Also, they might borrow funds to start businesses or invest in other businesses.
2.2 Firms
They are economic agents that are involved in production, distribution, and exchanges.They need funds for various reasons such as working capital financing and acquisition of capital items. Entities with surplus funds save and invest. While those with deficit fundings use leverages such as loans, commercial papers, and bonds.
2.3 Government
Government ministries, departments, and agencies are also actors in the financial market of a country. They are involved in production, distribution and exchange. In addition, they regulate the market. For example, the Central Bank of Nigeria (CBN) regulates the monetary policy and the finance ministry regulates the fiscal policy of the country.
Governments also have instances where they have deficit funds and borrow from various sources in the local and international financial market. Also, they can have surplus funds and use such to support households and firms through subsidies and other interventions.
3. Importance of economic agents
3.1 Play active roles
The economic agents act as players in the financial market. They contribute by providing funds or take those funds out of the system. Some players stabilizes the market by providing laws, rules, and policies that must be complied with by market intermediaries.
3.2 Regulates the market
The Central Banks, Security Exchanges, and finance ministries ensure the regulation of the market. This is to ensure that market some players do not take advantage of others to gain excessive profits.
3.3 Provides sources of funds
Some actors in the financial market have surplus funds, so they bring it to it through the available financial instrument. There by providing for those that source for funds through commercial papers, treasury bills, shares and bonds.
3.4 Act as deficit players
In addition, some economic agents act deficit actors. Therefore, they take the funds of those that have excess in other to meet their needs. These may includes consumption, production, distribution, exchange, or other needs.
4. Conclusion
In final words, the economic agents are seen as actors in the financial market of a country. In some articles in other blogs, a fourth agent is included, that is, the central bank. The activities of these actors have implications on the market. Future articles will discuss more on financial markets.
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