Finance

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We discussed financial intermediaries and banking industry in previous lectures. From now on, we are going to study financial markets. In this lecture, we’ll provide an overview of financial markets and discuss fundamental concepts and theories necessary for the understanding of later lectures. In following up lectures, we will cover various financial markets in details, in particular bond market, equity market, money markets, and derivative markets. In this lecture, we will discuss in particular various types of financial markets, financial claims traded on the markets, what market participants do in the markets, and the efficient market hypothesis (EMH).

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Each type of financial market is structured to meet particular demands of market participants. Some participants only want to borrow for a short term while others want to borrow for a long short-term, longterm. Some investors have higher risk tolerance while others prefer lower risk. There are several ways to classify financial markets. According to term to maturity, financial markets can be classified into money market and capital market. Money refers to funds maturing in one year. Examples of money market include interbank market, commercial bill market, the certificate of deposit market, treasury bill market and so on. Commercial bill is a short-term debt security issued by a company, as oppose to treasury bill which is a short-term debt security issued by central governments. Commercial bills are transferrable. Certificate of deposit is a certificate for a time deposit. Unlike a savings account, a t f bl C tifi t f d it i tifi t f ti d it U lik i t certificate of deposit is transferrable and it cannot be redeemed before the fixed date of maturity. Capital markets facilitates the flow of long-term funds. Bond market and stock market are two major types of capital markets. We’ll cover them in the next two lectures. Financial market participants include governments, banks, other...