Economics Notes: Financial Markets
1. Role of Financial Markets
Facilitate saving and investment
Help allocate resources efficiently
Provide liquidity
Help manage risk
2. Types of Financial Markets
Money Market: Short-term debt instruments (e.g., treasury bills)
Capital Market: Long-term funding (e.g., bonds, shares)
Foreign Exchange Market: Currency trading
Derivatives Market: Contracts based on other assets
3. Institutions Involved
Banks, investment firms, stock exchanges, insurance companies
4. Regulation
Prevent market failure, fraud, and protect consumers
Regulators: FCA (UK), SEC (USA), etc.
5. Market Failures in Finance
Asymmetric information
Moral hazard
Speculation and bubbles
6. Role in the Economy
Supports growth and development
Enables government borrowing and infrastructure funding
End of Notes
