2.1:
Introduction to Financial Markets
Financial markets are ecosystems where buyers and sellers trade assets like stocks, bonds, currencies, and derivatives.
Individual investors and large corporations all, buy and sell assets within these markets.
They aim to generate returns and reduce financial risk.
These financial markets operate within the regulatory framework, ensuring transaction fairness, efficiency, and transparency.
For example, NASDAQ is one of the major stock exchanges in the United States of America's financial market, where stocks are traded.
It gives small and large companies access to capital in exchange for giving investors a slice of ownership by selling stock.
The shares can be offered to a large number of investors for buying and selling any number of times.
Regulatory bodies like The Securities and Exchange Commission of the United States of America oversee the stock market to promote fair deals, disclose important information, and prevent fraud.
This increased transparency among the sellers and buyers creates trust and positively affects the stock markets.
These financial markets are crucial pillars of the global economy, facilitating capital allocation, risk management, and price discovery.
2.1 Introduction to Financial Markets
Financial markets are the cornerstone of the global economy, functioning as efficient conduits for the exchange of capital and opportunities. These markets pave the way for raising funds by connecting entities needing capital with investors and lenders willing to invest or lend money in exchange for future returns. They facilitate the free flow of capital and provide a platform for trading various financial instruments.
At the heart of financial markets lies the stock market, where shares of public companies are traded, offering investors a chance to own a slice of these companies and potentially share in their profits. Bond markets similarly match lenders to borrowers but with a focus on debt products, allowing governments and corporations to borrow by issuing bonds that investors can buy.
The foreign exchange market, or forex, allows for the conversion of currencies, which is crucial for international trade and investment. Derivatives markets offer contracts based on underlying asset value and help in hedging risk or speculating on price movements.
Efficiency, liquidity, and transparency are the hallmarks of a well-functioning financial market.