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This subject focuses on the way financial systems impact upon the working of our economies. Financial development has drastically increased the borrowing and savings opportunities of households, firms have now wider investment opportunities, and financial integration has drastically changed the growth patterns in East Asia and China. However, there is also an increasing awareness that because of financial integration and development, agents and economies’ performances are now deeply interlinked and subject to greater economic volatility than in the past.
The rapid development of financial markets and the role that they play in our economies call for an exploration of the links between the financial and the economic spheres. In the first part, this subject will provide the basis for an exploration of how financial markets impact upon the macroeconomic environment and its “real” outcomes. Historical, international and development perspectives will be considered. The second part explores the functioning of financial markets and how they shape behaviours, constraints and opportunities for firms and households alike. The last part explores policy issues and provides a key contribution to students’ critical understanding of current economic debates on the role of finance and financial institutions and how best to deliver positive economic outcomes.