4.4.1 Role of financial markets

• Financial liquid assets


  Assets exchanged in a financial market
• Financial markets


  • Stock market
  • Bond market
• Financial markets


  • Provide somewhere for consumers and firms to store their funds
  • Facilitate the transfer of funds between agents for investment or consumption
  • Facilitate the exchange of goods and services
  • Provide forward markets in currencies and commodities
  • Provide a market for equities
• Savings


  Rewarded with interest payments from the bank
• Transfer of funds between agents


  Aided by financial markets
• Transfer of real economic resources

  Facilitated in a financial market
• Currency market


  A kind of financial market used to trade one currency for another
• Currencies can have speculative attacks taken on them, which can affect the value of the exchange rate
• Commodity markets


  Investors trade primary products, such as wheat, gold and oil
• Future contracts


  A method for investing in commodities involving buying or selling an asset with an agreed price in the present, but a delivery and payment in the future
• Forward market


  An informal financial market where contracts for future delivery are made
• Equity markets


  Involve the trade of shares, also called a stock market
• Equity markets

  • Provide access to capital for firms
  • Allow investors to own part of a market
  • Returns on investment, usually in the form of dividends, are based on future performance
• Dividend


  A share of the firm's profits