Course Title : Financial Markets
Module No. & Title : Module 1: Introduction to Financial Markets
Time Frame : 1 hour
Overview
This module introduces students to the fundamentals of Financial Markets. The session will guide
students through the core concepts of financial markets, with emphasis on the definition, role in the
economy, and the key participants.
Desired Learning Outcomes
By the end of this module, students should be able to:
• Define what a financial market is
• Explain the significance of financial markets in the economy
• Identify key financial market participants and the roles they play
Interaction/Collaboration
This module is designed to be interactive, encouraging students to engage with the topic through:
• Group discussions to develop critical thinking
• Quick activities that reinforce conceptual understanding
Content/Discussion
Financial markets are part of our everyday lives, even if we don’t always realize it. But what exactly
are they? Who uses them, and why are they important? What kind of ‘things’ are bought and sold
there? Where can we find them, and how do they work? In this lesson, we’ll break down what
financial markets are and explain how they help move money between people, businesses, and
institutions.
Lesson 1: Definition of Financial Markets
Financial: refers to anything related to money – like saving, investing, borrowing, lending, or
managing funds.
Market: a place, institution, or mechanism that brings together buyers and sellers of goods or
services.
Therefore, the Corporate Finance Institute (CFI) defines financial markets as a marketplace that
provides an avenue for the sale and purchase of assets such as bonds, stocks, foreign exchange,
and derivatives. Simply put, it is a marketplace where participants buy, sell, borrow, or lend money
in the form of various financial instruments. The financial market brings together people who need
money and those who have the money.
Lesson 2: Key Participants in Financial Markets
Financial markets involve many different participants, each playing a specific role and having their
own goals. Below is a summary of the key people and institutions involved in financial markets:
o Investors/Lenders: people or organizations that put their money into financial assets
intending to make a profit. They provide capital (money) to businesses or governments, and
in return, they hope to earn something back, such as interest, dividends, or an increase in
the value of what they bought.
o Borrowers: individuals, businesses, or governments that need money to fund their
activities, and they get this money by borrowing it from others – through financial markets.
They issue bonds, take out loans, or use other financial tools to raise the funds they need.
In return, they agree to pay the money back, often with interest.
o Banks and Financial Institutions: act as intermediaries in financial markets. They help
connect people who have extra money (lenders) with those who need money (borrowers).
But how? Banks accept deposits from individuals or businesses, then lend that money to
people or organizations that need it. The borrower pays interest on the loan to the bank.
o Traders: individuals or institutions that buy and sell financial assets intending to make a
profit from price changes. They constantly monitor the markets to decide when to buy low
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and sell high (or vice versa). They may hold assets for just a few hours, or days – depending
on their strategy.
o Brokers and Dealers: middlemen in financial markets. They help buyers and sellers
connect so they can trade financial assets. They do not buy or sell for themselves but on
behalf of their clients (individuals or institutions).
o Regulators: government agencies or official organizations responsible for overseeing
financial markets to make sure everything is fair, transparent, and legal. They don’t buy or
sell financial products. Instead, they create and enforce the rules and standards that
everyone in the market must follow. Examples of regulators in the Philippines are the
Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP).
Lesson 3: Role of Financial Markets in the Economy
Financial markets and the economy are closely connected, with each influencing the other in many
ways. Because of this important connection, it’s essential to understand the specific roles financial
markets play in the economy – from moving money to where it is needed, to helping manage risks.
Let’s take a closer look at these key functions.
Role of Financial Markets in the Economy
o Channeling funds from lenders to borrowers
o Help determine the fair value of financial assets
o Investors can spread out their money across different financial products to reduce risk.
Assessment of Learning
Mini Case Scenario
Zoe received a 50,000.00 bonus from his employer. He wants to use the money wisely and is
considering two options:
1. Keep the money in a piggy bank at home for safekeeping
2. Invest in a beginner-friendly mutual fund recommended by her cousin.
She is unsure which option to choose, so she starts learning about financial markets.
Question:
1. Which of Zoe’s options involves the financial market?
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2. Who are the participants in this situation?
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References
CFI Team (nd). Financial Markets. Corporate Finance Institute.
[Link]
markets/
Kumar, P. (2022). Participants in Financial Markets. The MBA Institute.
[Link]
Prepared by
Sophia Anne C. Baterina, CPA
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