In finance, financial markets facilitate: Finance studies and addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks entailed in their projects. ...

• The raising of capital (in the capital markets);
• The transfer of risk (in the derivatives markets); and
• International trade (in the currency markets).

They are used to match those who want capital (borrowers) to those who have it (lenders). Capital has a number of related meanings in economics, finance and accounting. ... The capital market is the market for bonds and stocks. ... Risk is the potential harm that may arise from some present process or from some future event. ... A derivatives market is any market for a derivative security, that is a contract which specifies the right or obligation to receive or deliver future cash flows based on some future event such as the price of an independent security or the performance of an index. ... International trade is the exchange of goods and services across international boundaries. ... The Currency Market or Foreign Exchange Market is one of the largest markets in the world. ...

Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends. A receipt is a document made by a merchant, landlord, vendor, or other creditor in favor of a customer acknowledging having received an amount of money for some purpose. ... A security is a type of transferrable interest representing financial value. ... In finance, interest has three general definitions. ... A dividend is the distribution of profits to a companys shareholders. ...

In practice, financial markets also facilitate unbridled greed through speculation. Look up greed in Wiktionary, the free dictionary Greed is a desire to obtain more money or material possessions or bodily satisfaction than one is considered to need. ... Speculation involves the buying, holding, and selling of stocks, commodities, futures, currencies, collectibles, real estate, or any valuable thing to profit from fluctuations in its price as opposed to buying it for use or for income ( via dividends, rent etc). ...

Disambiguation

The term Financial markets can be a cause of much confusion.

Financial markets could mean:

1. organisations that facilitate the trade in financial products. i.e. Stock exchanges facilitate the trade in stocks, bonds and warrants.

2. the coming together of buyers and sellers to trade financial products. i.e. stocks and shares are traded between buyers and sellers in a number of ways including: the use of stock exchanges; directly between buyers and sellers etc.

In academia, students of finance will use both meanings but students of economics will only use the second meaning. Plato is credited with the inception of academia: the body of knowledge, its development and transmission across generations. ... Finance studies and addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks entailed in their projects. ... U.S. Economic Calendar Economics at the Open Directory Project Economics textbooks on Wikibooks The Economists Economics A-Z Institutions and organizations Bureau of Labor Statistics - from the American Labor Department Center for Economic and Policy Research (USA) National Bureau of Economic Research (USA) - Economics material from the organization...

Financial markets can be domestic or they can be international.

Types of financial markets

The financial markets can be divided into different subtypes:

• Capital markets which consist of:
  • Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.
  • Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof.
• Money markets, which provide short term debt financing and investment.
• Derivatives markets, which provide instruments for the management of financial risk.
  • Futures markets, which provide standardised forward contracts for trading products at some future date; see also forward market.
• Insurance markets, which facilitate the redistribution of various risks.
• Foreign exchange markets, which facilitate the trading of foreign exchange.

The capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities. The capital market is the market for bonds and stocks. ... The New York Stock Exchange The stock market is the market for the trading of company stock, both those securities listed on a stock exchange as well as those only traded privately. ... A stock, also referred to as a share, is commonly a share of ownership in a corporation. ... The bond market refers to people and entities involved in buying and selling of bonds and the quantity and prices of those transactions over time. ... Dutch East India Company bond, issued in 1623. ... The money market is a general term for the markets in which banks lend to and borrow from each other, trade financial instruments such as Certificates of Deposit (CDs) or enter agreements such as Repos and Reverses. ... A derivatives market is any market for a derivative security, that is a contract which specifies the right or obligation to receive or deliver future cash flows based on some future event such as the price of an independent security or the performance of an index. ... Finance studies and addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks entailed in their projects. ... This article needs to be cleaned up to conform to a higher standard of quality. ... A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time. ... The forward market describes the over the counter market in contracts for future delivery or, in physical commodities, for later shipment. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of potential financial loss. ... The foreign exchange market or currency market is the market where one currency is traded for another. ... Foreign exchange has several meanings: In telecommunications, Foreign exchange service is a type of network service. ... The capital market is the market for bonds and stocks. ... The primary market is the financial market for the initial issue and placement of securities. ... The secondary market (also called aftermarket) is the financial market for trading of securities that have already been issued in its initial private or public offering. ...

Raising capital

To understand financial markets, let us look at what they are used for, i.e. what is their purpose?

Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks help in this process. Banks take deposits from those who have money to save. They can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages. The essential function of a bank is to provide services related to the storing of deposits and the extending of credit. ... Money Money is any marketable good or token used by a society as a store of value, a medium of exchange, and a unit of account. ... A loan is a type of debt. ... Introduction A mortgage is a device used to create a lien on real estate by contract. ...

More complex transactions than a simple bank deposit require markets where lenders and their agents can meet borrowers and their agents, and where existing borrowing or lending commitments can be sold on to other parties. A good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its existing shares can be bought or sold. See stock (disambiguation) for other meanings of the term stock A stock, also referred to as a share, is commonly a share of ownership in a corporation. ... Investment is a term with several closely related meanings in finance and economics. ...

The following table illustrates where financial markets fit in the relationship between lenders and borrowers:

Lenders

Individuals do not think of themselves as lenders but they lend to other parties in many ways. Lending activities may be:

• putting money in a savings account at a bank;
• contributing to a pension plan;
• paying premiums to an insurance company;
• investing in government bonds; or
• investing in company shares.

Companies tend to be borrowers of capital. When companies have surplus cash that is not needed for a short period of time, they may seek to make money from their cash surplus by lending it via short term markets called money markets. A company is, in general, any group of persons united to pursue a common interest. ... The money market is a general term for the markets in which banks lend to and borrow from each other, trade financial instruments such as Certificates of Deposit (CDs) or enter agreements such as Repos and Reverses. ...

There are a few companies that have very strong cash flows. These companies tend to be lenders rather than borrowers. Such companies may decide to return cash to lenders (e.g. via a share buyback.) Alternatively, they make seek to make more money on their cash by lending it (e.g. investing in bonds and stocks.) In finance, a treasury stock or reacquired stock is stock which is bought back by the issuing company. ...

Borrowers

Individuals borrow money via bank loans for short term needs or longer term mortgages to help finance a house purchase. A loan is a type of debt. ... A mortgage (literal translation: death pledge) is a device developed in the common law world, whereby the ownership of property is passed from one person -- the mortgagor -- to another -- the mortgagee in return for the loan of money. ...

Companies borrow money to aid short term or long term cash flows. They also borrow to fund modernisation or future business expansion. In finance, cash flow refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. ...

Governments often find their spending requirements exceed their tax revenues. To make up this difference, they need to borrow. Governments also borrow on behalf of nationalised industries, municipalities, local authorities and other public sector bodies. The total borrowing requirement is often referred to as the Public Sector Borrowing Requirement or PSBR. Tax revenue is the income that is gained by governments because of taxation of the people. ... Public sector borrowing requirement (PSBR) is the name for the budget deficit in the United Kingdom. ...

Governments borrow by issuing bonds. In the UK, the government also borrows from individuals by offering bank accounts and Premium Bonds. Government debt seems to be permanent. Indeed the debt seemingly expands rather than being paid off. One strategy used by governments to reduce the value of the debt is to influence inflation. A government bond is a bond issued by a national government denominated in the countrys own currency. ... A Premium Bond is a bond issued by the United Kingdom governments National Savings & Investments scheme. ... Value is a term that expresses the concept of worth in general, and it is thought to be connected to reasons for certain practices, policies, or actions. ...

Municipalities and local authorities may borrow in their own name as well as receiving funding from national governments. In the UK, this would cover an authority like Hampshire County Council. A municipality or general-purpose district (compare with: special-purpose district) is an administrative local area generally composed of a clearly defined territory and commonly referring to a city, town, or village government. ... Local governments are administrative offices of an area smaller than a state. ...

Public Corporations typically include nationalised industries. These may include the postal services, railway companies and utility companies. A government corporation or government-owned corporation is a legal entity created by a government to exercise some of the powers of the government. ... Nationalization or Nationalisation is the act of taking assets into state ownership. ...

Many borrowers have difficulty raising money locally. They need to borrow internationally with the aid of Foreign exchange markets. The foreign exchange market or currency market is the market where one currency is traded for another. ...

Derivative products

During the 1980s and 1990s, a major growth sector in financial markets is the trade in so called derivative products, or derivatives for short. In finance, a derivative security is a contract that specifies the rights and obligations between the issuer of the security and the holder to receive or deliver future cash flows (or exchange of other securities or assets) based on some future event. ...

In the financial markets, stock prices, bond prices, currency rates, interest rates and dividends go up and down, creating risk. Derivative products are financial products which are used to control risk or paradoxically exploit risk. Risk is the potential harm that may arise from some present process or from some future event. ...

Currency markets

Seemingly, the most obvious buyers and sellers of foreign exchange are importers/exporters. This may be true in the distant past whereby importers/exporters created the initial demand for currency markets. Importers and exporters now represent only 1/32 of foreign exchange dealing, according to BIS. A currency is a unit of exchange, facilitating the transfer of goods and services. ... The Bank for International Settlements (BIS) is a financial international organization established under the Hague agreements of 1930. ...

The picture of foreign currency transactions today shows:

• Banks and Institutions
• Speculators
• Government spending (for example, military bases abroad)
• Importers/Exporters
• Tourists

Financial markets in popular culture

Gordon Gekko is a famous caricature of a rogue financial markets operator, famous for saying "greed ... is good".

Only negative stories about financial markets tend to make the news. The general perception, for those not involved in the world of financial markets is of a place full of crooks and con artists. Big stories like the Enron scandal serve to enhance this view. Gordon Gekko is a fictional character from the popular movie Wall Street. ... Caricature of Alan Greenspan by Jan Op De Beeck. ... News is essentially new information or current events. ... Crook can refer to the following: Crooking is a verb to refer to the action of creating a bend or curve; for example, crooking a finger. ... A confidence trick, confidence game, or con for short, (also known as a scam) is an attempt to intentionally mislead a person or persons (known as the mark) usually with the goal of financial or other gain. ... Enron Corporation Enron Corporation is an energy trading and communications company based in Houston, Texas that employed around 21,000 people in mid-2001 (before bankruptcy). ...

Stories that make the headlines involve the incompetent, the lucky and the downright skilful. The Barings scandal is a classic story of incompetence mixed with greed leading to dire consequences. Another story of note is that of Black Wednesday, when sterling came under attack from hedge fund speculators. This led to major problems for the United Kingdom and had a serious impact on its course in Europe. A commonly recurring event is the stock market bubble, whereby market prices rise to dizzying heights in a so called exaggerated bull market. This is not a new phenomenon; indeed the story of Tulip mania in The Netherlands illustrates an early recorded example. Barings Bank, previously known as Baring Brothers & Co. ... In British politics and economics, Black Wednesday (or White Wednesday in euro-sceptic parlance) refers to September 16, 1992 when the government was forced to withdraw the Pound from the European Exchange Rate Mechanism (ERM) by currency speculators—most notably George Soros who earned over USD$1 billion in doing... Sterling is: The currency of the United Kingdom, see Pound Sterling. ... The term hedge fund dates back to the first such fund founded by Alfred Winslow Jones in 1949. ... Speculation is the buying, holding, and selling of stocks, commodities, futures, currencies, collectibles, real estate, or any valuable thing to profit from fluctuations in its price as opposed to buying it for use or for income - dividends, rent etc. ... Wikiquote has a collection of quotations related to: European Union The European Union On-Line Official EU website, europa. ... A stock market bubble is a type of economic bubble taking place in stock markets, in which a wave of public enthusiasm, evolving into herd behavior, causes an exaggerated bull market . ... A bull market is a financial market where prices of instruments (e. ... Pamphlet from the Dutch tulipomania, printed in 1637 17th century drawing of the Semper Augustus, the most famous bulb, sold for a record price. ...

Financial markets are merely tools. Like all tools they have both beneficial and harmful uses. Overall, financial markets are used by honest people. Otherwise, people would turn away from them en masse. As in other walks of life, the financial markets have their fair share of rogue elements.

References

• An Introduction To Global Financial Markets, Steven Valdez, Macmillan Press Ltd. (ISBN 0333764471)

Financial market is a broad market where buyers and sellers to exchange various types of financial securities or products that comprise financial securities. ... Institutional fund management is fund management conducted by large financial firms such as banks, insurance companies and major investment organisations (e. ... A financial institution acts as an agent that provides financial services for its clients. ... Personal finance is the application of the principles of financial economics to an individuals (or a familys) financial decisions. ... Public finance (government finance) is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government. ... Financial mathematics is the branch of applied mathematics concerned with the financial markets. ... Financial economics is the branch of economics concerned with the workings of financial markets, such as the stock market, and the financing of companies. ...