Why Study Financial

Markets and Institutions

What are Financial Markets
 Financial markets consist of agents, brokers,
institutions, and intermediaries transacting
purchases and sales of securities.
 Financial markets provide our specialized,

interdependent economy with many financial

services, including time preference,
distribution of risk, diversification of risk,
transactions economy, transmutation of
contractual arrangements, and financial
management.
Financial Terminologies
 Security: The term "security" is a  negotiable financial
instrument that holds some type of monetary value
 Securities can be broadly categorized into two

distinct types: equities and debts.

 Equity Securities:An equity security represents

ownership interest held by shareholders in an entity

(a company, partnership or trust), realized in the
form of shares of capital stock, which includes
shares of both common and preferred stock.
Regular payments are not often but security holders
gain from capital gains
Debt security
 A debt security represents money that is
borrowed and must be repaid, with terms
that stipulates the size of the loan, interest
rate, and maturity or renewal date.
 Debt securities can be secured (backed by

collateral) or unsecured, and, if unsecured,

may be contractually prioritized over other
unsecured, subordinated debt in the case of a
bankruptcy. 
Financial Crises 2008
 https://www.youtube.com/watch?
v=N9YLta5Tr2A
Monetary policy and Central Banks
 central banks have many functions . One of
them is to make monetary policies that is
deciding on interest rates
 liquidity  is increased to create economic
growth. It reduces liquidity to prevent
inflation. Central banks use interest rates,
bank reserve requirements, and the amount of
government bonds that banks must hold. All
these tools affect how much banks can lend.
The volume of loans affects the money supply
Role of Central Bank
 The central bank has been described as "the
lender of last resort," which means it is
responsible for providing its nation's
economy with funds when commercial banks
cannot cover a supply shortage
 Central banks provides their countries'

currencies with price stability by controlling

inflation.