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FINANCE 3
Types of Markets
1. Physical Asset Markets versus Financial Asset Markets Physical asset markets (also called tangible or real asset markets) are for products such as wheat, autos, real estate, computers, and machinery. Financial asset markets, on the other hand, deal with stocks, bonds, notes, and mortgages. This also deals with derivative securities whose values are derived from changes in the prices of other assets
Spot markets are markets in which assets are bought or sold for on-the-spot delivery. While futures markets are markets in which participants agree today to buy or sell an asset at some future date.
Money markets are the markets for short term, highly liquid debt securities. While Capital markets are the markets for intermediate or long-term debt and corporate stocks.
Markets versus Secondary Markets Primary markets are the markets in which corporations raise new capital. While Secondary markets are markets in which existing, already outstanding securities are traded among investors.
Private markets, where transactions are negotiated directly between two parties, are differentiated from Public markets, where standardized contracts are traded on organized exchanges.
Recent Trends
1. Technological advances in computers and telecommunications; 2. Globalization; and 3. Increased use of Derivatives. Derivatives Any financial asset whose value is derived from the value of same underlying asset.
Financial Institutions
1. Investment Banks An organization that underwrites and distributes new investment securities and helps businesses obtain financing. (a) They help corporations design securities with features that are currently attractive to investors, (b) buy these securities from the corporations, and (c) resell them to savers.
that invest in short-term, low-risk securities and allow investors to write checks against their accounts. 9. Exchange Traded Funds These are similar to regular mutual funds and are often operated by mutual fund companies.
These are formal organizations having tangible physical locations that conduct auction markets in designated (listed) securities.