Financial market — the exchange of money
What is a financial market? - The definition
The financial market is a collective term for all markets in which financial instruments such as securities, foreign exchange, loans and commodities are traded. These markets play a central role in the global economy as they represent the Exchange of financial resources between capital providers and capital holders. In Switzerland and internationally, the financial market is divided into various sub-markets, including the money, foreign exchange, capital and credit markets.
What sub-markets does a financial market consist of?
The financial market is divided into several specialized sub-markets, which include various functions and trading instruments:
Money market
On the Money market Short-term financial instruments with maturities of up to one year are traded, such as daily and term deposits. The main players include banks, investment companies and central banks such as Swiss National Bank (SNB). This market is primarily used by short-term liquidity management from financial institutions and contributes to the stability of the entire financial system.
Foreign exchange market (Forex)
The forex, also known as the Forex market, is the largest financial market in the world. This is where the Foreign currency trading at current exchange rates (foreign exchange rates). The foreign exchange market enables transactions such as spot transactions, which are settled immediately, and forward transactions, which are settled at a later date. This market is crucial for international trade and the global economy as it enables currency exchange for import and export transactions.
capital market
The capital market It differs from the money market primarily in the longer term of the traded securities. It focuses on trading in medium-term and long-term investments, such as Stocks and bonds. Companies use this market to raise capital and increase capital by selling shares or bonds to investors. The capital market fulfills several key functions:
- functional protection: Ensures that investors receive all relevant information for well-founded decisions.
- individual protection: Ensures that all market participants have equal access to information.
- Market equalization: Trading on an open market balances supply and demand, which ensures fair market prices. Trading on an open market balances supply and demand, which ensures fair market prices.
- steering function: Capital is directed to projects with high returns.
- Risk transformation: Investors can minimize loss risks through diversification.
credit market
The credit market specializes in providing and taking out loans. Unlike standardized securities, such as those traded on the capital market, loans are customized agreements between lenders (e.g. banks, insurance companies) and borrowers. The credit market offers investors returns in the form of interest, while borrowers have access to funds to invest.
Organized and unorganized capital market
The capital market is also divided into organized and unorganized market as well as the Schwarzen Markt:
- Organized capital market (White Market): This is regulated by the state and includes established trading venues such as stock and bond markets. Banks and stock exchanges ensure transparent trading conditions under supervision.
- Unorganized capital market (Grey market): This market is less regulated and takes place outside established stock exchanges. Commodities often include closed-end funds or investments, and market participants trade directly with each other.
- Schwarzer Markt: The black market includes illegal business and trade without government regulation, which can undermine the economic system.
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