The role of financial markets in the wider economy

• Financial markets

  Any exchange or platform that facilitates the trading of financial instruments
• Main financial markets

  • Money market
  • Capital market
  • Foreign exchange market
• Money market

  Market for short-term loan finance for businesses and households, includes interbank market
• Capital market

  Market where securities like shares and bonds are issued to raise medium to long-term finance
• Capital market activities

  • Companies issuing new shares
  • Governments issuing bonds
• Foreign exchange market

  Market where currencies are traded, e.g. dollars, yen, yuan, pounds
• 6 key roles of financial markets

  • Provide a means for people to save
  • Provide a platform for businesses and individuals to borrow
  • Allocate funds efficiently to productive uses
  • Facilitate the exchange of goods and services
  • Provide forward markets to hedge against price uncertainty
  • Provide a market for equities to allow businesses to raise capital