Background of Financial Markets

Report

Contents
EXECUTIVE SUMMARY.............................................................................................................1
BACKGROUND OF FINANCIAL MARKETS............................................................................2
Identification and definition of financial marketplaces.........................................................2
Identification and definitions of main financial Instruments................................................3
Identification of key players in the market.............................................................................4
Identification or explanation of financial processes.............................................................4
CAPITAL ALLOCATION WITHIN DOMESTIC ECONOMY...................................................5
Allocation of capital by government of United Kingdom.....................................................5
Allocation of capital by large corporations............................................................................6
CAPITAL ALLOCATION WITHIN INTERNATIONAL MARKETS.........................................7
EVALUATION OF EMERGING ECONOMY.............................................................................8
CRITICAL EVALUATION OF CHALLENGES........................................................................10
CONCLUSION.............................................................................................................................11
REFERENCES............................................................................................................................12

EXECUTIVE SUMMARY
Financial market is a place in which trading and investment of financial instruments
is done. These marketplaces are controlled and operated by key players which are
investors, brokers and financial institutions. The main aim of this report is to build an
understanding about international trade, finance and investment matters. This report
intends to provide advice to potential investor about emerging markets. Background of
financial market is assessed in this report along with covering markets such as capital,
derivative, commodity, money and foreign exchange market. Capital allocation within
international and domestic market is also analysed along with evaluating an emerging
economy which is selected as China. At last, various challenges faced by China due to
industrialisation are discussed. It has been found from this report that China is the most
emerging economy and is a member of Global Value Chain dynamics due to which, it is
profitable to invest in such economy.
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BACKGROUND OF FINANCIAL MARKETS
Identification and definition of financial marketplaces
Financial markets are a marketplace where various securities are traded between
parties. This marketplace is usually known as stock exchange (Wei, 2017). There are
various markets which are classified as elements of stock exchange; these elements
are categorised according to the securities which are traded in it. These markets are
identified and defined as follows:
Capital market – These are the venues where investments and securities for long
time period are traded in order to acquire capital gains. In an economy, the money is
generated by Central Bank and then is circulated by various financial markets. In this
market, companies which require money to expand their business, issues securities
with lock in period of at least one year and then those securities are purchased by
individuals and enterprises who needs to multiply their investments by which money
flows in the market.
Derivative market – In this type of market, securities are traded between two
parties at a mutually agreed price. Only secondary securities are traded at this market
but the values are derived from primary markets. In this market, instead of shares and
stocks; people buy and sell futures and options. By this, people sell their securities at a
time nut for a price of future by which flow of money continues for a longer period.
Commodity market – This marketplace is different from others due to the securities
which are traded here. Instead of securities or bonds, commodities of primary economic
sector are traded here. In this market, people trade in commodities such as sugar, fruit,
cocoa etc. by which their requirements of commodities of people fulfils and the money
also flows in market with low risk.
Money market – This marketplace allows investors and traders to buy or sell short
term investments and securities so that liquid funds can be generated. It is a highly
liquid market; people can buy or sell their securities within days in this market due to the
liquidity of their stocks. This is the major source of money flow in the economy.
Foreign Exchange market – In this type of market, participants can purchase or
sell currencies. This is considered as most liquid market as there is no need to convert
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