Cachero, Ronel E.

ACCO 3063 | Financial Management

BSA 2-12

FINANCIAL MARKETS
A market is a place where goods and where goods and services are exchanged. A
financial market is a place where individuals and organizations wanting to borrow funds are
brought together with those having a surplus of funds.
Financial markets bring together people and organizations wanting to borrow money with
those having surplus funds. There are many different financial markets in a developed economy,
each dealing with a different type of instrument serving 3 with a different type of instrument,
serving a different set of customers, or operating in a different part of the country.

Types of Markets
1. Physical asset markets versus financial asset markets
Physical asset markets (also called "tangible" or "real" asset markets) are the
markets for such products as wheat, autos, real estate, computers, and machinery.
Financial asset markets deal with stocks, bonds, notes, mortgages, and other claims
on real assets.
2. Spot markets versus futures markets
Spot markets are markets in which assets are bought or sold for on the spot
delivery.
Futures markets are markets in which 5 Futures markets are markets in which
participants agree today to buy or sell an asset at a future date.
3. Money markets versus capital markets
Money markets are the markets for short-term, highly liquid debt securities, those
securities that mature in less than one year.
Capital markets are the markets for long-term debt and corporate stocks.
4. Primary markets versus secondary markets
Primary markets are the markets in which corporations sell newly issued
securities to raise capital.
Secondary markets are the markets in which existing (already outstanding) 7
which existing (already outstanding) securities are traded among investors.
5. Private markets versus public markets
Private markets are the markets where transactions are worked out directly
between two parties.
Public markets are the markets where 9 Public markets are the markets where
standardized contracts are traded on organized exchanges.

Recent Trends
Financial markets have experienced many changes in recent years. Technological
advances in computers and telecommunications, along with the globalization of banking and
commerce, have led to deregulation, which has increased competition throughout the world.
Globalization has exposed the need for greater cooperation among regulators at the
international level, but the task is not easy. Factors that complicate coordination include:
(1) the different structures in nations banking and securities industries
(2) the trend toward financial services conglomerates, which obscures developments in
various market segments
(3) the reluctance of individual countries to give up control over their national monetary
policies
Another important trend in recent years has been the increased use of derivatives.
A derivative is a security with a price that is dependent upon or derived from one or more
underlying assets. The derivative itself is a contract between two or more parties based
upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The
most common underlying assets include stocks, bonds, commodities, currencies,interest
rates and market indexes.

Derivatives can be used to reduce risks or to speculate.