Why do financial markets exist?

In today's episode of “Saving and Investing”, Michael Fischer explains why we have financial markets. If you've been following along, you can probably guess that their primary function is to encourage interaction between providers of capital (savers and investors) and users of capital (companies and governments).

Why do financial markets exist? (2:19)

In his book, Michael elaborates on the subject:

Because there are so many different users and providers of capital with different needs and preferences, there is more than one financial market, and also there are different terms used to describe different areas of the financial markets.

There are the stock and the bond markets of course — where providers of capital make funds available as owners or lenders, by investing in the slices of equity and debt of users of capital respectively. Investors also often refer to the money market, which is a financial market for short-term debt of one year or less, and the capital market — the market for transactions of over one year, which would include the stock market.

(Sometimes the terms are used a little loosely, and the term capital market is often used to refer to the entire financial market.)

For more on financial markets, read the entry at wikipedia. Also, Corporate Blawg UK shared a brief history of financial markets last year.

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14 years ago

Great article! I think people take for granted what the financial markets really represent and just take for granted that things just work the way it does (they are fine as long as their money increases if they put it in a money market account for instance). Many people want to know why stocks go up and down but it is the fundamentals of how everything works that needs to be learnt first in order to easily grasp concepts and ideas, which ultimately allows us to properly analyze all the factors in stock prices and make money. Learn to appreciate… Read more »

14 years ago

I agree with what’s been said. I actually just wrote about this topic a couple days ago.
While you can just park your money in a fund somewhere and have it go up just because it does, I think we’d do better by trying to understand how the investments actually work.


13 years ago

Great videos! Do you have exclusive rights to these vids?