Economics
Financial Markets
Financial markets are platforms where individuals and institutions trade financial securities, such as stocks, bonds, and commodities. These markets facilitate the allocation of capital and risk among investors and borrowers. They play a crucial role in determining asset prices and interest rates, and are essential for the functioning of modern economies.
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11 Key excerpts on "Financial Markets"
No longer available |Learn more- (Author)
- 2014(Publication Date)
- College Publishing House(Publisher)
____________________ WORLD TECHNOLOGIES ____________________ Chapter- 7 Financial Market In economics, a financial market is a mechanism that allows people to buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis. Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one place, thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy. In finance, Financial Markets facilitate: • The raising of capital (in the capital markets) • The transfer of risk (in the derivatives markets) • International trade (in the currency markets) – and are used to match those who want capital to those who have it. 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. In mathematical finance, the concept of a financial market is defined in terms of a continuous-time Brownian motion stochastic process. Definition In economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them. ____________________ WORLD TECHNOLOGIES ____________________ The term market is sometimes used for what are more strictly exchanges , organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange.
No longer available |Learn more- (Author)
- 2014(Publication Date)
- Orange Apple(Publisher)
____________________ WORLD TECHNOLOGIES ____________________ Chapter- 11 Financial Market In economics, a financial market is a mechanism that allows people to buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis. Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one place, thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy. In finance, Financial Markets facilitate: • The raising of capital (in the capital markets) • The transfer of risk (in the derivatives markets) • International trade (in the currency markets) – and are used to match those who want capital to those who have it. 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. In mathematical finance, the concept of a financial market is defined in terms of a continuous-time Brownian motion stochastic process. Definition In economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them. ____________________ WORLD TECHNOLOGIES ____________________ The term market is sometimes used for what are more strictly exchanges , organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange.
eBook - PDFIntroduction to Finance
Markets, Investments, and Financial Management
- Ronald W. Melicher, Edgar A. Norton(Authors)
- 2020(Publication Date)
- Wiley(Publisher)
financial system since the Great Depression years of the 1930s. More recently the United States has experienced ten plus years of economic growth. Of course, new economic and financial crisis probably will continue to occur in the future. Within the general field of finance, there are three areas of study – financial institu- tions and markets, investments, and financial management. Financial institutions collect funds from savers and lend them to, or invest them in, businesses or people that need cash. Exam- ples of financial institutions are commercial banks, investment banks, insurance companies, and mutual funds. Financial institutions operate as part of the financial system. The financial system is the environment of finance. It includes the laws and regulations that affect finan- cial transactions. The financial system encompasses the Federal Reserve System, which con- trols the supply of money in the U.S. economy. It also consists of the mechanisms that have been constructed to facilitate the flow of money and financial securities among countries. Financial Markets represent ways for bringing those who have money to invest together with those who need funds. Financial Markets, which include markets for mortgages, securities, and currencies, are necessary for a financial system to operate efficiently. Part 1 of this book examines the financial system, and the role of financial institutions and Financial Markets in it. Securities markets play an important role in helping businesses and governments raise new funds. Securities markets also facilitate the transfer of securities between investors. A securities market can be a central location for the trading of financial claims, such as the New York Stock Exchange. It may also take the form of a communications network, as with the over-the-counter market, which is another means by which stocks and bonds can be traded. INTRODUCTION Institutions and Markets
eBook - ePubInvestment and Portfolio Management
A Practical Introduction
- Ian Pagdin, Michelle Hardy(Authors)
- 2017(Publication Date)
- Kogan Page(Publisher)
01Financial Markets
By the end of this chapter you should understand the following key areas of Financial Markets:- the definition of Financial Markets;
- the history and development of Financial Markets;
- Financial Markets today;
- the categorization of markets;
- the key participants in a financial market;
- recent developments in Financial Markets;
- financial crises.
Introduction
As with the global fund management industry, which we cover in Chapter 2 , the Financial Markets provide a critical link between the providers of capital and those looking to use capital. Providers of capital include retail and institutional investors whilst users of capital include corporations and governments. Capital itself can include both debt and equity as well as other more exotic investments. Both providers and consumers of capital want transactions to be conducted efficiently, which, as we will see in Chapter 5 , includes transactions being conducted accurately, at low transaction costs, and with assets being valued at a fair price. One key aspect of Financial Markets over recent years is the pace of change which is being experienced due to increasing volatility in global markets, as well as developments in products, technology and investor sentiment. All of which make this industry dynamic and challenging for participants.Defining Financial Markets
The term ‘market’ in financial literature is used inconsistently and sometimes with little thought to the context of the situation. This is not a problem when you have been studying finance for a while as you will automatically know which market is being referred to in a piece of writing or conversation. However, when you first study finance it can make the area appear confusing and impenetrable. In the first instance, it helps to understand that a financial market or marketplace, unlike traditional food markets for instance, can be both a physical place and a virtual space. Additionally, the term ‘marketplace’ is often shortened to market, which again can make differentiation and understanding more difficult.
eBook - PDF- Nicholas L. Georgakopoulos(Author)
- 2017(Publication Date)
- Cambridge University Press(Publisher)
1 Introduction Real Markets and Financial Markets This book deals with the regulation of securities markets, but some readers may have little understanding of these markets. This chapter offers a quick (and optional) introduction to the world of Financial Markets with a focus on stock markets. The first section looks at some striking differences between real and Financial Markets and introduces the concept of the bid-ask spread, which is important for understanding securities pricing. The second section introduces stock markets, their basic struc- ture, their cast of characters, and their treatment by the media. Finally, the third section discusses the interdependence between the real sector of the economy and the financial sector. A. DIFFERENCES BETWEEN FINANCIAL AND REAL MARKETS Paradigmatic markets for real goods are farmers’ markets, retail malls, grocery stores, and retail neighborhoods. Real markets focus on satisfying consumers’ desires by matching goods with individuals. Financial Markets are about money rather than goods. Investors or savers place their money in investments that they hope will safely store it for some duration and produce interest (in the case of loans) or dividends and price appreciation (in the case of stocks and the aggregation of stocks into mutual funds or variable life insurance and annuities). 1 Investors often move their money between investments and then liquidate when they need to finance major expendi- tures or retirement. Financial intermediaries such as banks and brokerage houses help move the money from the investors to its users, usually the business firms that borrow or issue securities, and between investments. 1 Mutual funds aggregate the investments of many investors and hold a portfolio of securities that is professionally managed. Life insurance and annuities are investments that also have a mild insurance function.
eBook - PDFCorporate Finance
Theory and Practice in Emerging Economies
- Sunil Mahajan(Author)
- 2020(Publication Date)
- Cambridge University Press(Publisher)
Insider trading refers to trading on stocks by employees of a corporation based on information that is not available to the public. Finally, the importance of the Financial Markets has grown disproportionately and, over the years, their share as a percentage of the overall economy has increased multifold. Thomas Philippon (2014), professor of finance at the Stern School of Business, New York University, undertook a study to find out how well Financial Markets perform their primary task of intermediation. The study covered a period of the last 30 years. According to his study, there has been no significant improvement in the cost of intermediation over the years and the benefits of technology and productivity improvement have not been passed on to the customer by the finance industry. According to Professor Philippon’s study, the cost of intermediation has remained largely steady over the years. Many people believe that finance in recent times is more about secondary market trading than intermediation. Financial market participants need to undertake serious introspection to ensure that Financial Markets serve the needs of the economy and that of the common man and do not overwhelm the real economy which they are expected to support. KEY CONCEPTS 1. Financial Markets perform critical functions of the intermediation of funds, allocation of investments, price discovery and risk management. 2. Companies can raise funds through equity or debt. Both these instruments have very different features and risk–return characteristics. 3. Stock market, fixed-income securities market, foreign exchange market and the derivatives market are four types of Financial Markets based on the instruments traded. 4. The IPO is an important event by which a company raises funds from the public by issuing equity shares. 5. Secondary market enables trading of shares previously issued by the company through an IPO or otherwise and provides liquidity to investors.
eBook - PDF- Kevin D. Hoover(Author)
- 2011(Publication Date)
- Cambridge University Press(Publisher)
But that is unlikely; most savers look for a safe place to lodge their savings and one that will pro-vide them with interest or other return. As we saw in Chapter 2 (see Figure 2.3), Financial Markets serve to connect savers with excess purchasing power with borrowers with deficient purchasing power. Firms and individ-uals who borrow do so in order to spend. Investment and other spending using borrowed funds make up the shortfall in aggregate demand caused by savings. Once again, in a monetary economy whenever money flows in one direc-tion, something of equal value must flow in the opposite direction. When savers transfer money to Financial Markets, they receive in return a FINAN -CIAL INSTRUMENT – that is, a record (paper or electronic) that specifies a claim to a current or future valuable good – for example, to the repayment of a debt or to the privileges of ownership . There are a bewildering vari-ety of financial instruments, although many are familiar to us all: checking accounts, savings accounts, corporate stocks, and government bonds. (The counterflow of financial instruments is not shown in Figure 2.3, but it is there in reality nonetheless.) Again, a disruption to the flow and counterflow of savings and financial instruments is likely to disrupt the flows of real goods and services that ultimately matter for our welfare. Even in a smoothly flow-ing economy, the terms on which people and firms borrow and lend, partic-ularly the rate of interest, will affect not only how much is saved and bor-rowed, but who does the saving and the borrowing. We have isolated two aspects of the financial system: the monetary trans-actions system and Financial Markets. We now look at each in more detail, starting with money. The Monetary Economy For economists, “What is money?,” has long been a vexed question. There is no doubt that a dollar bill is money. But what else, if anything, counts as money? Traditionally, money has been defined by its functions: 1.
eBook - PDFScreening Economies
Money Matters and the Ethics of Representation
- Daniel Cuonz, Scott Loren, Jörg Metelmann, Daniel Cuonz, Scott Loren, Jörg Metelmann(Authors)
- 2018(Publication Date)
- transcript Verlag(Publisher)
According to other accounts, the ways that Financial Markets operate emanate from ‘performative’ effects of economic theorizing and modelling, to the effect that markets are, in Michel Callon’s famous phrase, ‘embedded in economics’ (Callon 1998). Still from a different perspective, Financial Markets have been recon- 126 Andreas Langenohl structed as particular types of publics, capitalizing on the argument that financial dynamics cannot be understood without taking into account the different audience segments, and more generally the public (re-)presenta-tion of Financial Markets, that form and negotiate expectations regarding the valuation of financial products. Lastly, the financial economy has been characterized as an economy of fictions, an approach that stresses the speculative, imaginative and anticipatory logic of financial investments. Social-scientific approaches to the financial economy have thus tended to reconstruct the particularities of Financial Markets and their interrelation with other sectors of the economy and of society at large within a, broadly and variously understood, semiotic idiom. After having reconstructed this context, the paper will conclude by suggesting an understanding of Financial Markets as an economy of the unreal . The term ‘unreal’ will be developed in an, only seemingly paradox-ical, interrelation with an analysis of techniques of the empirical that char-acterize current practices of financial valuation. The main point will be that financial dynamics are fueled by discrepancies between empirically grounded technologies of valuation and a sense of the future as uncertain. Financial Markets as Semiotic Economies: On ‘Decoupling’ For some time now, economic sociology has attempted to wrest away the analysis of economic processes from economics, especially in its neoclas-sical variety.
eBook - PDFWho's Afraid of John Maynard Keynes?
Challenging Economic Governance in an Age of Growing Inequality
- Paul Davidson(Author)
- 2017(Publication Date)
- Palgrave Macmillan(Publisher)
With the computer and the inter- net, there will be huge numbers of buyers and sellers meeting rap- idly and efficiently in virtual space. Consequently there is no need for humans to act as specialist market makers to keep the books and to assure the public the market is orderly as well as well-organized. Underlying this efficient market view of the role of Financial Markets is the presumption that the current and future value of traded finan- cial assets is already predetermined by today’s market “fundamentals” (at least in the long run 3 ). Former US Treasury Secretary and Harvard Professor Lawrence Summers has written that Financial Markets are effi- cient in that their “ultimate social functions are spreading risks, guid- ing investment of scarce capital, and processing and dissemination the information possessed by diverse traders….prices always reflect funda- mental values …. The logic of efficient markets is compelling” 4 . In the numerous Financial Markets that became disorderly and failed in the Winter of 2007–2008, the underlying financial instruments that were to provide the future cash flow for investors typically involved long term debt instruments such as mortgages, or long-term corporate or municipal bonds. A necessary condition for these markets to be efficient 84 P. Davidson is that the probabilistic risk of the debtors to fail to meet all future cash flow contractual debt obligations can be “known” to all market partici- pants with actuarial certainty. With this actuarial knowledge, it even can be profitable for insurance companies to sell credit default swaps insur- ance to holders of these financial debt instruments guaranteeing the holder would be reimbursed for remaining interest payments and prin- cipal repayment at maturity if a default did occur.
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
The profit trend has since continued to increase each year, though at a less steady or consistent rate. (Source: Federal Reserve Economic Data (FRED) https://research.stlouisfed.org/fred2/series/CPATAX) Many firms, from huge companies like General Motors to startup firms writing computer software, do not have the financial resources within the firm to make all the desired investments. These firms need financial capital from outside investors, and they are willing to pay interest for the opportunity to obtain a rate of return on the investment of that financial capital. On the other side of the financial capital market, financial capital suppliers, like households, wish to use their savings in a way that will provide a return. Individuals cannot, however, take the few thousand dollars that they save in any given year, write a letter to General Motors or some other firm, and negotiate to invest their money with that firm. Financial capital markets bridge this gap: that is, they find ways to take the inflow of funds from many separate financial capital suppliers and transform it into the funds of financial capital demanders desire. Such Financial Markets include stocks, bonds, bank loans, and other financial investments. Click to view content (https://openstax.org/books/principles-economics-3e/pages/17-introduction-to- financial-markets) Corporate Profits After Tax (Adjusted for Inventory and Capital Consumption) 408 17 • Financial Markets Access for free at openstax.org LINK IT UP Visit this website (http://openstax.org/l/marketoverview) to read more about Financial Markets. Our perspective then shifts to consider how these financial investments appear to capital suppliers such as the households that are saving funds. Households have a range of investment options: bank accounts, certificates of deposit, money market mutual funds, bonds, stocks, stock and bond mutual funds, housing, and even tangible assets like gold.
It is worth stressing again the role of the sovereign in the genesis of a financial market. A bourse may stem from totally private initiatives, but it aims nonetheless to facilitate governmental financing. Consider the origins of the New York Stock Exchange. This renowned market originated in meetings held by two dozen brokers under a buttonwood tree located on Wall Street. What was their objective? They wanted to formalize a fee- based system for transactions concerning the first debt certificates of the just-created federal government. The farmers and Financial Markets Thus a market is a meeting place where traders negotiate – and haggle over – a fair price for their respective wares. A bourse is an identifiable THE MARKETPLACE 21 and readily located place to trade securities. It is a public, transparent, level playing field in some ways comparable to a football gridiron or a baseball diamond. A large number of orders to buy encounter a comparably large number of orders to sell. Securities are at stake. Just as historians are chronically prone to mistake a ramshackle conference room for a tried-and-true stock exchange, economists are inclined to place urban fruit and vegetable markets under the same vendor’s umbrella as the spectacle offered by Wall Street traders. And yet a stock market differs fundamentally not only from a food market, but also from a money or a commodity market. In a typical goods market the buyer and the seller come to terms so that while one acquires the wares, the other obtains monetary recompense. Anne-Robert-Jacques Turgot (1727 – 81) was a minister under Louis XVI, the guillotined French king, from 1774 through 1776. In 1766 he published his Reflections on the Formation and Distribution of Wealth. His writings may have inspired Adam Smith, whose publication entitled An Inquiry into the Nature and Causes of the Wealth of Nations dates from ten years later.
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