What is the black market?

A black market is considered a type of economic activity taking place outside the sanctioned channels of the government. The transactions of the black market usually occur “under the table” to allow participants to avoid price controls or taxes of the government.

The black markers are also known to be the venues where there are illegal trading of highly controlled products or substances such as firearms and drugs. The black markets have the capacity to take a toll on a country’s economy since the nature of these markets is like a shadow where the taxes are not paid and no record of the economic activities are kept. Observing in the context of finance, the largest black markets are likely to exist in countries where there are strict currency controls.

There are a number of drawbacks of black market which mainly include the risk of fraud, probability of any sort of violence, getting saddled with adulterated products or counterfeit goods (which is very dangerous especially when it is in case of medication),and more importantly, the fact that the buyers have no customer security.

Talking about the currency black markets, they are mainly known to exist in countries having weak economic fundamentals (high inflation rates and low currency reserves for example) and where the exchange rates are fixed and the domestic currency is pegged at a very high level to the United States dollar or any other internationally significant currency.