Lecture 1 - An Introduction to Financial Markets (FINM1001)

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15 Terms

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Financial market

Any market where a financial instrument is traded.

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What are three main roles of financial markets?

  1. The bringing together of lenders and borrowers.

  2. The transference of risk between parties.

  3. International trade.

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Borrowers

Anyone that needs more money than what they've got and are going to use a financial instrument to get it.

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Lenders

Anyone that has more money than what they need to spend on consumption, so they will provide money with the view of receiving a return.

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What are the 4 main financial markets?

  1. Money markets

  2. Capital markets

  3. Derivatives markets

  4. Foreign exchange markets

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Money markets

All financial markets where debt instruments that mature in 1 year or less are traded.

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What do money markets facilitate?

Money markets are markets that facilitate short-term borrowing and lending.

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5 examples of money market submarkets

Specific examples include, but are not limited to:

  1. Short-Term Government Debt Market.

  2. Interbank Market.

  3. Bills Market

  4. Commercial Paper Market

  5. Negotiable Certificates of Deposit (CD) Market

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Capital markets

All financial markets where debt and equity instruments originally maturing in more than 1 year are traded.

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What do capital markets facilitate?

Capital markets are markets that facilitate medium-to-long term borrowing and lending.

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What are 3 types of instruments that are traded in capital markets?

  1. Medium-to-long term corporate debt

  2. Medium-to-long term government debt

  3. Equity

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Primary market transactions

Involve newly issued instruments and, therefore, these transactions will raises funds for the issuers.

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Secondary market transactions

Simply represent a transferring from one holder to another and therefore do not raise any additional funds for the issuer.

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Derivatives markets

Derivative markets trade derivatives. Derivatives allow us to "lock-in" the price of an asset in advance.

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Foreign exchange markets

Foreign exchange markets trade foreign exchange / currencies.