This introductory chapter reviewed the basic operations of domestic and foreign financial markets and institutions. It described the ways in which funds flow through an economic system from lenders to borrowers and outlined the markets and instruments that lenders and borrowers employ to complete this process. | Chapter One Introduction Why study Financial Markets and Institutions? Prudent investment and financing requires a thorough understanding of the structure of domestic and international markets the flow of funds through domestic and international markets the strategies used to manage risks faced by investors and savers 1- McGraw-Hill/Irwin Financial Markets Financial markets are structures through which funds flow Financial markets can be distinguished along two dimensions primary versus secondary markets money versus capital markets 1- McGraw-Hill/Irwin Primary versus Secondary Markets Primary markets markets in which users of funds (., corporations and governments) raise funds by issuing financial instruments (., stocks and bonds) Secondary markets markets where financial instruments are traded among investors (., NYSE and Nasdaq) 1- McGraw-Hill/Irwin Money versus Capital Markets Money markets markets that trade debt securities with maturities of one year or less (., CDs and . Treasury bills) Capital markets markets that trade debt (bonds) and equity (stock) instruments with maturities of more than one year 1- McGraw-Hill/Irwin Money Market Instruments Outstanding, ($Bn) 1- McGraw-Hill/Irwin Capital Market Instruments Outstanding, ($Bn) 1- McGraw-Hill/Irwin Foreign Exchange (FX) Markets FX markets trading one currency for another (., dollar for yen) Spot FX the immediate exchange of currencies at current exchange rates Forward FX the exchange of currencies in the future on a specific date and at a pre-specified exchange rate 1- McGraw-Hill/Irwin Derivative Security Markets Derivative security a financial security whose payoff is linked to (., “derived” from) another security or commodity generally an agreement to exchange a standard quantity of assets at a set price on a specific date in the future 1- McGraw-Hill/Irwin Financial Market Regulation The Securities Act of 1933 full and fair disclosure and . | Chapter One Introduction Why study Financial Markets and Institutions? Prudent investment and financing requires a thorough understanding of the structure of domestic and international markets the flow of funds through domestic and international markets the strategies used to manage risks faced by investors and savers 1- McGraw-Hill/Irwin Financial Markets Financial markets are structures through which funds flow Financial markets can be distinguished along two dimensions primary versus secondary markets money versus capital markets 1- McGraw-Hill/Irwin Primary versus Secondary Markets Primary markets markets in which users of funds (., corporations and governments) raise funds by issuing financial instruments (., stocks and bonds) Secondary markets markets where financial instruments are traded among investors (., NYSE and Nasdaq) 1- McGraw-Hill/Irwin Money versus Capital Markets Money markets markets that trade debt securities with maturities of one year or .
