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Encyclopedia > Financial market
Financial markets

Bond market
Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
High-yield debt
Download high resolution version (480x640, 110 KB)Blockade in front of NYSE. Picture taken in April 2004. ... The bond market, also known as the debit, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. ... This article does not cite any references or sources. ... A corporate bond is a bond issued by a corporation. ... A government bond is a bond issued by a national government denominated in the countrys own currency. ... In the United States, a municipal bond or muni is a bond issued by a state, city or other local government, or their agencies. ... Bond valuation is the process of determining the fair price of a bond. ... To meet Wikipedias quality standards, this article or section may require cleanup. ...

Stock market
Stock
Preferred stock
Common stock
Stock exchange
A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ... This article does not cite any references or sources. ... A preferred stock, also known as a preferred share or simply a preferred, is a share of stock carrying additional rights above and beyond those conferred by common stock. ... Common stock, also referred to as common shares, are, as the name implies, the most usual and commonly held form of stock in a corporation. ...

Foreign exchange market
Retail forex
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. ... The Retail Forex (Retail Currency Trading or Retail Forex or Retail FX) market is a subset of the much larger Foreign exchange market. ...

Derivative market
Credit derivative
Hybrid security
Options
Futures
Forwards
Swaps
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. ... // A credit derivative is a financial instrument or derivative (finance) whose price and value derives from the creditworthiness of the obligations of a third party, which is isolated and traded. ... Definition A hybrid security, as the name implies, is a security that combines two or more different financial instruments. ... In finance options are types of derivative contracts, including call options and put options, where the future payoffs to the buyer and seller of the contract are determined by the price of another security, such as a common stock. ... In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. ... This article does not cite any references or sources. ... This article or section is in need of attention from an expert on the subject. ...

Other Markets
Commodity market
OTC market
Real estate market
Spot market
Chicago Board of Trade Futures market Commodity markets are markets where raw or primary products are exchanged. ... Over-the-counter (OTC) trading is to trade financial instruments such as stocks, bonds, or derivatives directly between two parties. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ... Template:The Spot Market The Spot Market or Cash Marketis a commodities or securities market in which goods are sold for cash and delivered immediately. ...

Valuation and Theories
Market Valuation
Financial market efficiency
Financial market efficiency is an important topic in the world of Finance. ...


Finance series
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation
This article does not cite any references or sources. ... There are two basic financial market participant catagories, Investor vs. ... Domestic credit to private sector in 2005 Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. ... Public finance (government finance) is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government. ... “Banker” redirects here. ... Financial supervision is government supervision of financial institutions by regulators. ...

v d

In economics a financial market is a mechanism that allows people to easily 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 efficient markets. Face-to-face trading interactions on the New York Stock Exchange trading floor. ... It has been suggested that Commerce be merged into this article or section. ... Securities are tradeable interests representing financial value. ... A commodity is something for which there is demand, but which is supplied without qualitative differentiation across a given market. ... In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange. ... In finance, the efficient market hypothesis (EMH) asserts that financial markets are informationally efficient, or that prices on traded assets, e. ...


Financial markets have evolved significantly over several hundred years and are undergoing constant innovation to improve liquidity. Market liquidity is a business, economics or investment term that refers to an assets ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value. ...


Both general markets, where many commodities are traded and specialised markets (where only one commodity is traded) exist. Markets work by placing many interested sellers in one "place", thus making them easier to find for prospective buyers. 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 that is based, such as a gift economy. This article needs additional references or sources to facilitate its verification. ... A planned economy is an economic system in which economic decisions are made by centralized planners, who determine what sorts of goods and services to produce, and how they are to be priced and allocated. ... It has been suggested that Free market be merged into this article or section. ... A gift economy is an economic system in which the prevalent mode of exchange is for goods and services to be given without explicit agreement upon a quid pro quo (the Latin term for the concept of a favor for a favor). Typically, this occurs in a cultural context where...


In Finance, Financial markets facilitate: This article does not cite any references or sources. ...

They are used to match those who want capital to those who have it. Capital has a number of related meanings in economics, finance and accounting. ... The capital market (securities markets) is the market for securities, where companies and the government can raise long-term funds. ... Lets talk about risk control strategies, anyone with more information and willing to share, please do so. ... The derivatives markets are the financial markets for derivatives. ... International trade is the exchange of goods and services across international boundaries or territories. ... 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 written acknowledgement that a specified article or sum of money has been received. ... For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable interest representing financial value. ... For other senses of this word, see interest (disambiguation). ... A dividend is the distribution of profits to a companys shareholders. ...

Contents

Definition

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. Academia is a collective term for the scientific and cultural community engaged in higher education and research, taken as a whole. ... Face-to-face trading interactions on the New York Stock Exchange trading floor. ...


Financial markets can be domestic or they can be international.


Types of financial markets

The financial markets can be divided into different subtypes:

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 (securities markets) is the market for securities, where companies and the government can raise long-term funds. ... A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ... This article does not cite any references or sources. ... The bond market, also known as the debit, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. ... In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. ... Chicago Board of Trade Futures market Commodity markets are markets where raw or primary products are exchanged. ... This article is about short-term financing. ... The derivatives markets are the financial markets for derivatives. ... This article does not cite any references or sources. ... The introduction to this article provides insufficient context for those unfamiliar with the subject matter. ... This article does not cite any references or sources. ... 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 a contingent loss. ... The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. ... The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. ... The capital market (securities markets) is the market for securities, where companies and the government can raise long-term funds. ... The primary is that part of the capital markets that deals with the issuance of new securities. ... The secondary market is the financial market for trading of securities that have already been issued in an 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. “Banker” redirects here. ... Various denominations of currency, one form of money Money is any good or token that functions as a medium of exchange that is socially and legally accepted in payment for goods and services and in settlement of debts. ... A loan is a type of debt. ... This article does not cite any references or sources. ...


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:

Relationship between lenders and borrowers
Lenders Financial Intermediaries Financial Markets Borrowers
Individuals
Companies
Banks
Insurance Companies
Pension Funds
Mutual Funds
Interbank
Stock Exchange
Money Market
Bond Market
Foreign Exchange
Individuals
Companies
Central Government
Municipalities
Public Corporations

The term financial intermediary may refer to an institution, firm or individual who performs intermediation between two or more parties in a financial context. ...

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. The term company may refer to a separate legal entity, as in English law, or may simply refer to a business, as is the common use in the United States. ... This article is about short-term financing. ...


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 may 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 bankers loans for short term needs or longer term mortgages to help finance a house purchase. A loan is a type of debt. ...


Companies borrow money to aid short term or long term cash flows. They also borrow to fund modernisation or future business expansion. This article does not cite any references or sources. ...


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. In the UK, the total borrowing requirement is often referred to as the public sector borrowing requirement (PSBR). Tax revenue is the income that is gained by governments because of taxation of the people. ... Public sector borrowing requirement (PSBR) is the old 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. ... In general, the economic value of something is how much a product or service is worth to someone relative to other things (often measured in money). ...


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 is an administrative entity composed of a clearly defined territory and its population and commonly referring to a city, town, or village, or a small grouping of them. ... Local governments are administrative offices that are smaller than a state or province. ...


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 transferring assets into public ownership. ...


Many borrowers have difficulty raising money locally. They need to borrow internationally with the aid of Foreign exchange markets. The foreign exchange (currency or forex or FX) market exists wherever 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. Derivatives traders at the Chicago Board of Trade. ...


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. Lets talk about risk control strategies, anyone with more information and willing to share, please do so. ...


Currency markets

Seemingly, the most obvious buyers and sellers of foreign exchange are importers/exporters. While this may have been 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.[1] The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. ... A currency is a unit of exchange, facilitating the transfer of goods and services. ... BIS Headquarters in Basel The Bank for International Settlements (or BIS) is an international organization of central banks which exists to foster cooperation among central banks and other agencies in pursuit of monetary and financial stability. It carries out its work through subcommittees, the secretariats it hosts, and through its...


The picture of foreign currency transactions today shows:

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

Analysis of financial markets

See Statistical analysis of financial markets, statistical finance

Much effort has gone into the study of financial markets and how prices vary with time. Charles Dow, one of the founders of Dow Jones & Company and The Wall Street Journal, enunciated a set of ideas on the subject which are now called Dow Theory. This is the basis of the so-called technical analysis method of attempting to predict future changes. One of the tenets of "technical analysis" is that market trends give an indication of the future, at least in the short term. The claims of the technical analysts are disputed by many academics, who claim that the evidence points rather to the random walk hypothesis, which states that the next change is not correlated to the last change. Much effort has gone into the study of financial markets and how prices vary with time. ... // Statistical finance [1], sometimes called econophysics [2], is an empirical attempt to shift finance from its normative roots to a positivist framework using exemplars from statistical physics with an emphasis on emergent or collective properties of financial markets. ... Charles Henry Dow (November 6, 1851 – December 4, 1902) was an American journalist who co-founded Dow Jones & Company with Edward Jones and Charles Bergstresser. ... Dow Jones redirects here. ... The Wall Street Journal (WSJ) is an international daily newspaper published by Dow Jones & Company in New York City, New York, USA, with Asian and European editions, and a worldwide daily circulation of more than 2 million as of 2006, with 931,000 paying online subscribers. ... Dow Theory is a theory on stock price movements that provides a basis for technical analysis. ... Technical analysis is the study of past financial market data, primarily through the use of charts, to forecast price trends and make investment decisions. ... In investing, financial markets are commonly believed to have market trends[1] that can be classified as primary trends, secondary trends (short-term), and secular trends (long-term). ... The random walk hypothesis is a financial theory, close to the efficient market hypothesis, stating that market prices evolve according to a random walk and thus cannot be predicted. ...


The scale of changes in price over some unit of time is called the volatility. It was discovered by Benoît Mandelbrot that changes in prices do not follow a Gaussian distribution, but are rather modeled better by Lévy stable distributions. The scale of change, or volatiliy, depends on the length of the time unit to a power a bit more than 1/2. Large changes up or down are more likely that what one would calculate using a Gaussian distribution with an estimated standard deviation. Volatility most frequently refers to the standard deviation of the change in value of a financial instrument with a specific time horizon. ... Benoît B. Mandelbrot, PhD, (born November 20, 1924) is a Franco-American mathematician, best known as the father of fractal geometry. Benoît Mandelbrot was born in Poland, but his family moved to France when he was a child; he is a dual French and American citizen and was... Probability density function of Gaussian distribution (bell curve). ... In probability theory, a Lévy skew alpha-stable distribution or just stable distribution, developed by Paul Lévy, is a probability distribution where sums of independent identically distributed random variables have the same distribution as the original. ... See Also: Watt In physics, a power law relationship between two scalar quantities x and y is any such that the relationship can be written as where a (the constant of proportionality) and k (the exponent of the power law) are constants. ... In probability and statistics, the standard deviation of a probability distribution, random variable, or population or multiset of values is a measure of the spread of its values. ...


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, portrayed by Michael Douglas. ... For the book of comics by Daniel Clowes see Caricature (Daniel Clowes collection) A caricature of film comedian Charlie Chaplin. ... For other uses, see News (disambiguation). ... 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 (Former NYSE ticker symbol: ENE) was an American energy company based in Houston, Texas. ...


Stories that make the headlines involve the incompetent, the lucky and the downright skillful. 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 in the 17th century illustrates an early recorded example. Barings Bank, previously known as Baring Brothers & Co. ... In British politics and economics, Black Wednesday 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 US$1 billion in doing so. ... Sterling may refer to: Sterling (car), a British automobile manufacturer. ... A hedge fund is a private investment fund charging a performance fee and typically open to only a very limited range of qualified investors. ... 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. ... Motto (Latin) United in diversity Anthem Ode to Joy(orchestral) Commission seat Brussels Official languages 23 Bulgarian Czech Danish Dutch English Estonian Finnish French German Greek Hungarian Irish Italian Latvian Lithuanian Maltese Polish Portuguese Romanian Slovak Slovenian Spanish Swedish Member states 27 Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia... A stock market bubble is a type of economic bubble taking place in stock markets when price of stocks rise and become overvalued by any measure of stock valuation. ... A bull market is a prolonged period of time when prices are rising in a financial market faster than their historical average. ... // Pamphlet from the Dutch tulipomania, printed in 1637 The term tulip mania (alternatively tulipomania) is used metaphorically to refer to any large economic bubble. ...


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.


Financial markets slang

  • Big swinging dick, a highly successful financial markets trader. The term was made popular in the book Liar's Poker, by Michael Lewis
  • Geek, a Quant
  • Grim, an ageless man known for his whistle and tendency to relate current events to financial market[citation needed]
  • Nerd, a Quant
  • Quant, a quantitative analyst skilled in the black arts of PhD level (and above) mathematics and statistical methods
  • Rocket scientist, a financial consultant at the zenith of mathematical and computer programming skill. They are able to invent derivatives of frightening complexity and construct sophisticated pricing models. They generally handle the most advanced computing techniques adopted by the financial markets since the early 1980s. Typically, they are physicists and engineers by training; rocket scientists do not necessarily build rockets for a living.
  • White Knight, a friendly party in a takeover bid. Used to describe a party that buys the shares of an organisation to help prevent the takeover of that organisation by another party (that is making a hostile bid).

Liars poker is a bar game that combines statistical reasoning with bluffing, and is played with the eight-digit serial number on a dollar bill. ... Michael Lewis (born 1960, New Orleans, Louisiana) is an American contemporary non-fiction author. ... A quantitative analyst is a person who works in the financial markets developing mathematical models to assist the activities of traders and risk managers within banks and other large corporate institutions. ... PhD usually refers to the academic title Doctor of Philosophy PhD can also refer to the manga Phantasy Degree This is a disambiguation page — a list of pages that otherwise might share the same title. ... Euclid, Greek mathematician, 3rd century BC, as imagined by by Raphael in this detail from The School of Athens. ... A graph of a normal bell curve showing statistics used in educational assessment and comparing various grading methods. ... Derivatives traders at the Chicago Board of Trade. ... In business, a white knight may be a corporation, a private company, or a person that intends to help another firm. ... A takeover in business refers to one company (the acquirer, or bidder) purchasing another (the target). ...

See also

Financial capital, or economic capital, is any liquid medium or mechanism that represents wealth, or other styles of capital. ... Financial instruments package financial capital in readily tradeable forms - they do not exist outside the context of the financial markets. ... A Stock Trader or Stock Investor is a securities professional or firm, who buys and sells securities, such as stocks and bonds. ...

Notes

  1. ^ Steven Valdez, An Introduction To Global Financial Markets

References

  • Steven Valdez, An Introduction To Global Financial Markets, Macmillan Press Ltd. (ISBN 0-333-76447-1)
  • Hagen Kleinert, Path Integrals in Quantum Mechanics, Statistics, Polymer Physics, and Financial Markets, 4th edition, World Scientific (Singapore, 2004); Paperback ISBN 981-238-107-4 (also available online: PDF-files)


Economics topics | Finance topics | Accounting topics | Management topics | Marketing topics | List of economists

  Results from FactBites:
 
Financial market - Wikipedia, the free encyclopedia (1640 words)
In general, any commodity market might be considered to be a financial market, if the usual purpose of traders is not the immediate consumption of the commodity, but rather as a means of delaying or accelerating consumption over time.
Financial markets are affected by forces of supply and demand, and allocate resources over time through a price mechanism such as the interest rate.
The general perception, for those not involved in the world of financial markets is of a place full of crooks and con artists.
Financial market - definition of Financial market in Encyclopedia (153 words)
The financial markets are markets which facilitate the raising of funds or the investment of assets, depending on viewpoint.
Stock markets, which facilitates equity investment and buying and selling of shares of stock.
Bond markets, which provides financing through the issue of debt contracts and the buying and selling of bonds and debentures.
  More results at FactBites »

 
 

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