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Introduction To Financial Markets and Services

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24 views3 pages

Introduction To Financial Markets and Services

Uploaded by

lukazc068
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to Financial Markets and Services

1. Overview of Financial Markets

Financial markets are platforms where buyers and sellers engage in the trading of financial
assets, such as stocks, bonds, currencies, and derivatives. They play a critical role in the
economy by allocating resources, determining prices, providing liquidity, and facilitating
transactions. Financial markets connect borrowers and lenders, helping to channel funds
from savers to those who need capital.

2. Types of Financial Markets

Financial markets are classified based on the nature of transactions and instruments
traded:

Money Market: Deals with short-term borrowing and lending, typically using instruments
like Treasury bills and commercial paper.

Capital Market: Facilitates the trading of long-term securities like stocks and bonds. It
includes both the primary and secondary markets.

Forex Market: A global marketplace for trading currencies, crucial for international trade
and investment.

Derivatives Market: Focuses on contracts whose value is derived from underlying assets
like stocks, commodities, or indexes.
3. Financial Instruments and Securities

Financial instruments are assets that can be traded in the markets. They include:

Equities: Represent ownership in a company (stocks).

Bonds: Debt instruments where the issuer promises to pay a fixed interest to the
bondholder.

Commodities: Physical assets like gold, oil, or agricultural products.

Derivatives: Financial contracts like options and futures, based on an underlying asset.

4. Role of Financial Services in the Economy

Financial services support individuals, businesses, and the economy by managing money,
facilitating investments, and helping in risk management. They drive economic growth by
providing credit, managing wealth, and creating opportunities for investment, employment,
and development.

5. Types of Financial Services

The financial sector offers a wide range of services, including:

Banking Services: Deposits, loans, and payment processing.


Insurance Services: Protection against financial loss.

Investment Services: Brokerage, mutual funds, and asset management.

Advisory Services: Financial consulting, wealth management, and retirement planning.

6. Key Regulatory Bodies and Their Functions

Regulatory bodies ensure stability, transparency, and fairness in financial markets. Key
organizations include:

Securities and Exchange Commission (SEC): Regulates securities markets and protects
investors.

Federal Reserve (in the US): Manages monetary policy and oversees banks.

Insurance Regulatory Authorities: Oversee the insurance industry.

Central Banks (e.g., RBI in India): Control the money supply and interest rates,
maintaining financial stability.

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