WEEK 9
Financial Markets
Types of financial markets
You will learn about:
You will learn to:
Examine economic issues
Apply economic skills
Traditional economics sets out some basic premises. Let's think these through and see where they are happening in our everyday lives.
You will learn about:
- primary and secondary markets
- consumer credit, housing loans, business loans, short term money market, bond market, financial futures, foreign exchange
- the share market – its role, function and effect on the economy
- domestic and global markets
You will learn to:
Examine economic issues
- examine the contribution of financial markets to the economic welfare of individuals and firms
- investigate the extent of competition in financial markets
Apply economic skills
- compare and contrast financial markets with product markets
Traditional economics sets out some basic premises. Let's think these through and see where they are happening in our everyday lives.
- Finance markets can be for debt or equity financing
- Primary and secondary financial markets are the two main categories of financial markets
- The laws of demand and supply operate in finance markets
- Specific finance markets such as the share market, have implications for domestic and global markets
The role of financial markets in the economy
The finance market is an integral part of our economic system and provide the capital to invest in assets, businesses or personal wealth. Financial intermediaries handle accumulated funds and loan to individuals or businesses. As share ownership increases in Australia, significantly through superannuation funds and their dominance of the finance sector, the share market also plays a crucial role in the finance market.
Finance markets can be divided two types of markets:
1. Primary - the initial or created product is traded directly between investors and providers; and
2. Secondary - the product is traded again in the secondary markets
There are four main finance markets:
1. The share or equity market: shares issued and traded.
2. The foreign exchange market: foreign currencies traded.
3. The debt market: Cash, mortgages and bonds are traded.
4. The derivatives market: Financial assets that are based on the value of other financial assets are traded.
Finance markets can be divided two types of markets:
1. Primary - the initial or created product is traded directly between investors and providers; and
2. Secondary - the product is traded again in the secondary markets
There are four main finance markets:
1. The share or equity market: shares issued and traded.
2. The foreign exchange market: foreign currencies traded.
3. The debt market: Cash, mortgages and bonds are traded.
4. The derivatives market: Financial assets that are based on the value of other financial assets are traded.
Understanding Capital Markets
Visual Capitalist
Here's a flashback from 2020:
Black Swan events and the concept of Anti-fragility
From "Antifragile: Things That Gain from Disorder" by Nassim Taleb:
Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure , risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better. This property is behind everything that has changed with time: evolution, culture, ideas, revolutions, political systems, technological innovation, cultural and economic success, corporate survival, good recipes (say, chicken soup or steak tartare with a drop of cognac), the rise of cities, cultures, legal systems, equatorial forests, bacterial resistance … even our own existence as a species on this planet. And antifragility determines the boundary between what is living and organic (or complex), say, the human body, and what is inert, say, a physical object like the stapler on your desk.
The antifragile loves randomness and uncertainty, which also means— crucially—a love of errors, a certain class of errors. Antifragility has a singular property of allowing us to deal with the unknown, to do things without understanding them— and do them well. Let me be more aggressive: we are largely better at doing than we are at thinking, thanks to antifragility. I’d rather be dumb and antifragile than extremely smart and fragile, any time.
It is easy to see things around us that like a measure of stressors and volatility: economic systems , your body, your nutrition (diabetes and many similar modern ailments seem to be associated with a lack of randomness in feeding and the absence of the stressor of occasional starvation), your psyche. There are even financial contracts that are antifragile: they are explicitly designed to benefit from market volatility.
Antifragility makes us understand fragility better. Just as we cannot improve health without reducing disease, or increase wealth without first decreasing losses, antifragility and fragility are degrees on a spectrum.
Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure , risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better. This property is behind everything that has changed with time: evolution, culture, ideas, revolutions, political systems, technological innovation, cultural and economic success, corporate survival, good recipes (say, chicken soup or steak tartare with a drop of cognac), the rise of cities, cultures, legal systems, equatorial forests, bacterial resistance … even our own existence as a species on this planet. And antifragility determines the boundary between what is living and organic (or complex), say, the human body, and what is inert, say, a physical object like the stapler on your desk.
The antifragile loves randomness and uncertainty, which also means— crucially—a love of errors, a certain class of errors. Antifragility has a singular property of allowing us to deal with the unknown, to do things without understanding them— and do them well. Let me be more aggressive: we are largely better at doing than we are at thinking, thanks to antifragility. I’d rather be dumb and antifragile than extremely smart and fragile, any time.
It is easy to see things around us that like a measure of stressors and volatility: economic systems , your body, your nutrition (diabetes and many similar modern ailments seem to be associated with a lack of randomness in feeding and the absence of the stressor of occasional starvation), your psyche. There are even financial contracts that are antifragile: they are explicitly designed to benefit from market volatility.
Antifragility makes us understand fragility better. Just as we cannot improve health without reducing disease, or increase wealth without first decreasing losses, antifragility and fragility are degrees on a spectrum.