LECTURE # 10

The Global credit and

Financial markets. Gold

market

FINANCIAL MARKET 

A financial market - is a market in which people

and entities can trade financial securities, 

commodities, and other fungible items of value at

low transaction costs and at prices that reflect 

supply and demand. Securities include stocks and

bonds, and commodities include precious metals or

agricultural goods.

There are both:

- general markets (where many

commodities are traded)

- specialized markets (where only

one commodity is traded). 

IN FINANCE, FINANCIAL MARKETS FACILITATE:The raising of capital (in the capital markets)

The transfer of risk (in the derivatives markets)

Price discovery

Global transactions with integration of financial

markets

The transfer of liquidity (in the money markets)

International trade (in the currency markets)

TYPES OF F INANCIAL MARKETS:

Within the financial sector, the term "financial

markets" is often used to refer just to the

markets that are used to raise finance:

for long term finance, the Capital markets;

for short term finance, the Money markets.

Another common use of the term is as a

catchall for all the markets in the financial sector.

Capital markets which consist of:

Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.• Bond markets, which provide financing

through the issuance of bonds, and enable the subsequent trading thereof.

Commodity markets, which facilitate the trading

of commodities.

Money markets, which provide short term debt

financing and investment.

GOLD MARKET

Of all the precious metals, gold is the most

popular as an investment. Investors generally

buy gold as a way of diversifying risk. The gold

market is subject to speculation as are other

markets, especially through the use of 

futures contracts and derivatives. Gold price

has shown a long term correlation with the

price of crude oil. This suggests a reason why

gold is sold off during economic weakness

Derivatives markets, which provide instruments for

the management of financial risk.

Futures markets, which provide standardized 

forward contracts for trading products at some future

date; see also forward market.

Insurance markets, which facilitate the

redistribution of various risks.

Foreign exchange markets, which facilitate the

trading of foreign exchange.

GOLD MARKETC E N T R A L B A N K

Central banks and the International Monetary Fund play

an important role in the gold price. At the end of 2004 

central banks and official organizations held 19 percent of

all above-ground gold as official gold reserves.[15] The ten-

year Washington Agreement on Gold (WAG), which dates

from September 1999, limits gold sales by its members

(Europe, United States, Japan, Australia, 

Bank for International Settlements and the International

Monetary Fund) to less than 500 tonnes a year.

European central banks, such as the 

Bank of England and Swiss National Bank, were

key sellers of gold over this period.[17] In 2009,

this agreement was extended for a further five

years, but with a smaller annual sales limit of

400 tonnes.

GLOBAL CREDIT

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