4.2.4.1 The structure of financial markets and financial assets

asset

anything of value owned by an individual business or government that can provide future economic benefits

cash, bonds, company stock, real estate

assets from most to least liquid

financial markets

places or systems, where people and businesses buy and sell financial assets like stocks, bonds, and currencies

financial markets

systems where people, firms, and governments buy and sell financial assets, such as shares, bonds, loans, and currencies. They help connect savers with those who need finance.

money, capital, FOREX

types of financial markets

money market

This type of financial market is for short-term borrowing(up to 1 year)

capital market

This type of financial market is for long-term borrowing(over 1 year)

FOREX market

This type of financial market is for any time frame borrowing

Treasury bills, commercial paper, short-term loans

what is traded in money markets?

shares(equity) and bonds

what is traded in capital markets?

currencies

what is traded in FOREX markets?

helps manage liquidity, quick access to cash

Purpose of money markets

raise long-term finance for investment and growth

Purpose of capital markets

allow international trade, travel, and investment

Purpose of FOREX markets

saving, borrowing, investment, risk management, price setting

functions of financial markets

safe place to store money where those who wish to save and borrow it can meet

Why are financial markets important for saving?

access to loans, mortgages, and credit

Why are financial markets important for borrowing?

helps firms raise money by selling shares and bonds

Why are financial markets important for investment?

insurance, hedging and protection against exchange rate changes

Why are financial markets important for risk management?

supply and demand determine prices of shares, bonds, and currencies

Why are financial markets important for price setting?

save money in bank accounts and earn interest, borrowing, invest in shares/bonds, use FOREX

What do consumers use financial markets for?

raise finances by issuing bonds/shares, borrow short-term loans(money market), international trade(FOREX market), manage risk

What do firms use financial markets for?

low confidence →less savings/investments, banks lend less→firms struggle to operate, unemployment and recession may rise

What happens if financial markets lack trust?