Financial Markets and Instruments

Financial markets are used to match those who want capital to those need it. A financial market is a mechanism that allows people to buy and sell financial securities such as stocks and bonds, commodities and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis. Financial markets facilitate: • The raising of capital in the capital markets. • The transfer of risk in the derivative markets. • International trade in the currency markets. A financial instrument is either cash; evidence of an ownership interest in an entity; or a contractual right to receive, or deliver, cash or another financial instrument. A real or virtual document is that representing a legal agreement involving some sort of monetary value. A sharp acceleration in the pace of innovation, deregulation and structural changes in the recent years has transformed the financial system in important ways.