WHAT ARE THE FINANCIAL MARKETS?

The word finance originally came from the French word ‘finer’ meaning to settle a debt, and markets derived from the Latin word ‘mercari’ which means to buy!

The term ‘Financial Market’ can seem overwhelming, often when you read or watch media coverage the whole thing can leave you feeling rather confused, often being above the experience of most people. Yet whatever your level of experience it goes without saying that in business people strive to manage their assets and liabilities to seek maximum advantage, which in turn they believe will bring them life fulfilment, happiness, and success. It is in the arena of financial markets where business is conducted, fortunes are made and lost. Here only the fittest survive!

In short financial markets have the role of facilitating the movement of funds between lenders and borrowers (ranging from large organisations to individuals), and are classified into primary and secondary markets. Primary markets are used by businesses, governments and households to raise funds for the expenditure of goods, services, and assets. Secondary markets on the other hand are used by investors to trade what has been bought in the primary market.

Financial markets are also classified into capital markets and money markets. Capital markets are for companies and governments that need to raise capital by offering new stocks. This is done using the primary market and new stocks can include IPO’s, company options, placements, bonds etc. Once newly issued stocks are sold in the primary market they can be traded through the secondary markets. Money markets on the other hand are used by banks that lend and borrow from each other by trading financial instruments such as Certificates of Deposit (CD’s) or enter into agreements such as repos and reverses. Money markets provide short to medium term liquidity in the global financial system.

Some derivatives of the money market include forward rate agreements (FRA’s) and futures. Examples of financial markets include the London Stock Exchange (for the resale of previously issued stock shares IPOs (sometimes referred to as a Stock Market Launch)), and the U.S. government bond market (for the resale of previously issued bonds).