Introduction to international financial markets

International financial market can be taken to describe the process by which regional economies, societies and cultures have become integrated through a global network of political ideas through communication, transportation and trade.

           

            Economy:                    Product market (goods & services)
                                                Factor market (labour & capital)

Financial markets are categorised under factor market where financial assets/securities are traded.

Tangible asset's value depends on specific physical characteristics; e.g. Building, cars, equipment.

Intangible assets are legal clams to a future expected gain. E.g. a share in a company provides and expected benefit in terms of giving a right of ownership to part of company's assets. Indeed financial assets are intangible asset. Financial assets are also termed financial securities or investments.

It is also worth to note that there are linkages between tangible and intangible  asset is financed by financial assets.

In general, a market is a place where goods and services are traded. However, in a financial market, there is exchange of financial assets like equities or debts.

A debt investment is a financial asset where leaders give loans to borrowers and in return the latter pays the principal amount plus interest.

An equity investment requires that the issuer of the financial asset to pay the holder an amount based on net profit. In particular, in and equity market, new ordinary shares are issued and existing ordinary shares are bought and sold.

The economic functions of financial markets:

1.      Transfer of funds.

2.      Redistribution of risks.

3.      Price discovery of financial risks.

4.      Liquidity in trade financial risks.

5.      Reduce transaction costs (search costs and information costs.)