FIN 032 : Special Topics in Financial Management
Module #2 Student Activity Sheet
Name: __________________________________________ Class number: ______
Section: __________ Schedule: _____________________ Date: _____________
Lesson title: Financial Markets Materials:
Learning Targets: SAS
At the end of the module, students will be able to:
1. define Financial Markets and their role in the References:
economy; Hayes, A. (2023, October). From
2. identify the key participants in Financial Investopedia:
Markets; [Link]
3. describe the structure of Financial Markets. /[Link]
Tarver, E. (2022, August). From
Investopedia:
[Link]
swers/060515/what-are-some-
examples-financial-markets-and-
[Link]
A. LESSON PREVIEW/REVIEW
Introduction
Hi! Welcome to Day 2 of Special Topics in Financial Management. Previously,
we had an overview of the subject and its course requirement. Now, let us learn the
first topic of the subject which is Financial Markets.
B. MAIN LESSON
LO1. Define Financial Markets and their role in the economy.
What Are Financial Markets?
Financial markets refer broadly to any marketplace where securities trading
occurs. These markets are the basis of capitalist societies, providing capital formation
and liquidity for businesses which can be physical or virtual.
The financial market includes the stock exchanges such as the New York
Stock Exchange (NYSE), Nasdaq, the London Stock Exchange (LSE), and the TMX
Group. Other financial markets include the bond and foreign exchange markets,
where people trade currencies.
This document is the property of PHINMA EDUCATION 1
FIN 032 : Special Topics in Financial Management
Module #2 Student Activity Sheet
Name: __________________________________________ Class number: ______
Section: __________ Schedule: _____________________ Date: _____________
LO2. Identify the key participants in Financial Markets.
Understanding the Financial Markets
Financial markets play a vital role in facilitating the smooth operation of
capitalist economies by allocating resources and creating liquidity for businesses and
entrepreneurs. Financial markets make it easy for buyers and sellers to trade their
financial holdings. It creates securities products that provide a return for those with
excess funds (investors/lenders) and make these funds available to those needing
additional money (borrowers).
Financial markets are created when people buy and sell financial instruments,
including equities, bonds, currencies, and derivatives. Financial markets rely heavily
on informational transparency to ensure that the markets set prices that are efficient
and appropriate. Take note: Prices of securities traded in the financial markets may
not necessarily reflect their intrinsic value.
LO3. Describe the structure of Financial Markets.
Types of Financial Markets
➢ Stock Markets
The most abundant type of financial markets are stock markets. These are
venues where companies list their shares, which are bought and sold by traders and
investors. Stock markets, or equities markets, are used by companies to raise capital
and by investors to search for returns.
Stocks may be traded on listed exchanges, such as the New York Stock
Exchange (NYSE), Nasdaq, or the over-the-counter (OTC) market. Most stock trading
is done via regulated exchanges, which plays an important economic role because it
is another way for money to flow through the economy. The stock market is
considered a capital market because it provides long-term financing for companies.
Typical participants in a stock market include (both retail and institutional)
investors, traders, market makers (MMs), and specialists who maintain liquidity and
provide two-sided markets. Brokers are third parties that facilitate trades between
buyers and sellers but who do not take an actual position in a stock.
This document is the property of PHINMA EDUCATION 2
FIN 032 : Special Topics in Financial Management
Module #2 Student Activity Sheet
Name: __________________________________________ Class number: ______
Section: __________ Schedule: _____________________ Date: _____________
➢ Over-the-Counter Markets
An over-the-counter (OTC) market is a decentralized market — it does not have
physical locations, and trading is conducted electronically. In this market participants
trade securities directly – without a broker. While OTC markets may handle trading in
certain stocks (e.g., smaller or riskier companies that do not meet the listing criteria of
exchanges), most stock trading is done via exchanges. Certain derivatives markets,
however, are exclusively OTC, making up an essential segment of the financial
markets. Broadly speaking, OTC markets and the transactions that occur in them are
far less regulated, less liquid, and more opaque.
➢ Bond Markets
A bond is a security in which an investor loans money for a defined period at a
pre-established interest rate. You may think of a bond as an agreement between the
lender and borrower containing the loan's details and its payments. Bonds are issued
by corporations as well as by municipalities, states, and sovereign governments to
finance projects and operations.
The bond market refers broadly to the marketplace where investors buy and
sell debt securities. Bonds are typically traded, but notes and bills are also exchanged.
Both governments and companies issue debt for a variety of reasons such as reducing
overall debt, funding growth projects, or simply helping maintain day-to-day
operations. For example, the bond market sells securities such as notes and bills
issued by the United States Treasury.
The bond market can be further segmented into two categories: the primary
market and the secondary market. New debt is created on the primary market where
bond issuers raise capital directly from bond buyers. The secondary market is where
investors trade previously issued debt securities.
Individual investors typically participate in the bond market through retail
brokers. The bond market is also called the debt, credit, or fixed-income market.
➢ Money Markets
Typically, the money markets trade in products with highly liquid short-term
maturities (less than one year) and are characterized by a high degree of safety and
a relatively lower interest return than other markets.
This document is the property of PHINMA EDUCATION 3
FIN 032 : Special Topics in Financial Management
Module #2 Student Activity Sheet
Name: __________________________________________ Class number: ______
Section: __________ Schedule: _____________________ Date: _____________
At the wholesale level, the money markets involve large-volume trades
between institutions and traders. At the retail level, they include money market mutual
funds bought by individual investors and money market accounts opened by bank
customers. Individuals may also invest in the money markets by purchasing short-
term certificates of deposit (CDs), municipal notes, or U.S. Treasury bills, among other
examples.
The money market is one of the pillars of the global financial system. It involves
overnight swaps of vast amounts of money between banks and the government. The
majority of money market transactions are wholesale transactions that take place
between financial institutions and companies.
Institutions that participate in the money market include banks that lend to one
another and to large companies in the eurocurrency and time deposit markets;
companies that raise money by selling commercial paper into the market, which can
be bought by other companies or funds; and investors who purchase bank CDs as a
safe place to park money in the short term. Some of those wholesale transactions
eventually make their way into the hands of consumers as components of money
market mutual funds and other investments.
➢ Commodities Markets
Commodities markets are venues where producers and consumers meet to
exchange physical commodities such as agricultural products (e.g., corn, livestock,
soybeans), energy products (oil, gas, carbon credits), precious metals (gold, silver,
platinum), or "soft" commodities (such as cotton, coffee, and sugar). These are known
as spot commodity markets, where physical goods are exchanged for money.
However, the bulk of trading in these commodities takes place on derivatives
markets that utilize spot commodities as the underlying assets. Forwards, futures, and
options on commodities are exchanged both OTC and on listed exchanges around
the world, such as the Chicago Mercantile Exchange (CME) and the Intercontinental
Exchange (ICE). Derivatives allow investors to profit from commodities without having
to physically possess them
This document is the property of PHINMA EDUCATION 4
FIN 032 : Special Topics in Financial Management
Module #2 Student Activity Sheet
Name: __________________________________________ Class number: ______
Section: __________ Schedule: _____________________ Date: _____________
➢ Derivatives Markets
A derivative is a contract between two or more parties whose value is based
on an agreed-upon underlying financial asset (like a security) or set of assets (like an
index). Rather than trading stocks directly, a derivatives market trades in futures and
options contracts and other advanced financial products that derive their value from
underlying instruments like bonds, commodities, currencies, interest rates, market
indexes, and stocks.
Futures markets are where futures contracts are listed and traded. Unlike
forwards, which trade OTC, futures markets utilize standardized contract
specifications, are well-regulated, and use clearinghouses to settle and confirm
trades. Options markets, such as the Chicago Board Options Exchange (Cboe),
similarly list and regulate options contracts. Both futures and options exchanges may
list contracts on various asset classes, such as equities, fixed-income securities,
commodities, and so on.
➢ Forex Market
The forex (foreign exchange) market is where participants can buy, sell, hedge,
and speculate on the exchange rates between currency pairs. The forex market is the
most liquid market in the world, as cash is the most liquid of assets. The currency
market handles more than $7.5 trillion in daily transactions, more than the futures and
equity markets combined.
As with the OTC markets, the forex market is also decentralized and consists
of a global network of computers and brokers worldwide. The forex market is made
up of banks, commercial companies, central banks, investment management firms,
hedge funds, and retail forex brokers and investors.
➢ Cryptocurrency Markets
Thousands of cryptocurrency tokens are available and traded globally across
a patchwork of independent online crypto exchanges. These exchanges host digital
wallets for traders to swap one cryptocurrency for another or for fiat monies such as
dollars or euros.
Because most crypto exchanges are centralized platforms, users are
susceptible to hacks or fraudulent activity. Decentralized exchanges are also available
This document is the property of PHINMA EDUCATION 5
FIN 032 : Special Topics in Financial Management
Module #2 Student Activity Sheet
Name: __________________________________________ Class number: ______
Section: __________ Schedule: _____________________ Date: _____________
that operate without any central authority. These exchanges allow direct peer-to-peer
(P2P) trading without an actual exchange authority to facilitate the transactions.
Futures and options trading are also available on major cryptocurrencies.
The Bottom Line
Financial markets provide liquidity, capital, and participation that are essential
for economic growth and stability. Without financial markets, capital could not be
allocated efficiently, and economic activity such as commerce and trade, investments,
and growth opportunities would be greatly diminished.
Many players make markets an essential part of the economy—firms use stock
and bond markets to raise capital from investors. Speculators look to various asset
classes to make directional bets on future prices. At the same time, hedgers use
derivatives markets to mitigate various risks, and arbitrageurs seek to take advantage
of mispricing or anomalies observed across various markets. Brokers often act as
mediators that bring buyers and sellers together, earning a commission or fee for their
services.
Activity 1. Skill Building Activities
Multiple Choice: Read each question CAREFULLY and write the letter of your
answer in the space provided before each number.
_____1. ________ trade in all types of securities and are critical to the smooth
operation of a capitalist society.
a. Financial Market b. Stock Market
c. Bond Market d. Commodity Market
_____2. Which of the following financial market is the most liquid market in the world?
a. Cryptocurrency Market b. Stock Market
c. Forex Market d. Commodity Market
_____3. Which financial market provides venues for companies to list their shares?
a. Cryptocurrency Market b. Bond Market
c. Forex Market d. Stock Market
This document is the property of PHINMA EDUCATION 6
FIN 032 : Special Topics in Financial Management
Module #2 Student Activity Sheet
Name: __________________________________________ Class number: ______
Section: __________ Schedule: _____________________ Date: _____________
_____4. Which financial market involves the purchase and sale of large volumes of
very short-term debt products?
a. Cryptocurrency Market b. Stock Market
c. Forex Market d. Money Market
_____5. Who often act as mediators that bring buyers and sellers together?
a. Investors b. Market Makers
c. Specialists d. Brokers
C. LESSON WRAP-UP
• Financial markets
✓ Financial markets refer broadly to any marketplace where the trading of
securities occurs.
✓ There are many kinds of financial markets, including (but not limited to) forex,
money, stock, and bond markets.
✓ These markets may include assets or securities that are either listed on
regulated exchanges or trade over-the-counter (OTC).
✓ Financial markets trade in all types of securities and are critical to the smooth
operation of a capitalist society.
✓ When financial markets fail, it can result to economic disruption, including
recession and rising unemployment.
• Stock markets
✓ Stock markets are venues where buyers and sellers meet to exchange equity
shares of public corporations.
✓ Stock markets are components of a free-market economy because they enable
democratized access to investor trading and exchange of capital.
✓ Stock markets create efficient price discovery and efficient dealing.
✓ The stock market is regulated by the Securities and Exchange Commission
(SEC) and local regulatory bodies.
• Bond market
✓ The bond market can help investors diversify beyond stocks.
✓ Some of the characteristics of bonds include their maturity, their coupon
(interest) rate, their tax status, and their callability.
This document is the property of PHINMA EDUCATION 7
FIN 032 : Special Topics in Financial Management
Module #2 Student Activity Sheet
Name: __________________________________________ Class number: ______
Section: __________ Schedule: _____________________ Date: _____________
✓ Several types of risks associated with bonds include interest rate risk,
credit/default risk, and prepayment risk.
✓ Most bonds come with ratings that describe their investment grade.
• Money market
✓ The money market involves the purchase and sale of large volumes of very
short-term debt products, such as overnight reserves or commercial paper.
✓ An individual may invest in the money market by purchasing a money market
mutual fund, buying a Treasury bill, or opening a money market account at a
bank.
✓ Money market investments are characterized by safety and liquidity
✓ Money market accounts offer higher interest rates than a normal savings
account, but there are higher account minimums and limits on withdrawals.
• Commodity Market
✓ A commodity market involves buying, selling, or trading a raw product, such
as oil, gold, or coffee.
✓ There are hard commodities, which are generally natural resources, and soft
commodities, which are livestock or agricultural goods.
✓ Spot commodities markets involve immediate delivery, while derivatives
markets entail delivery in the future.
✓ Investors can gain exposure to commodities by investing in companies that
have exposure to commodities or by investing in commodities directly via
futures contracts.
Frequently Asked Questions
1. What Are the Different Types of Financial Markets?
Some examples of financial markets and their roles include the stock market,
the bond market, forex, commodities, and the real estate market, among others.
Financial markets can also be broken down into capital markets, money markets,
primary vs. secondary markets, and listed vs. OTC markets.
2. How Do Financial Markets Work?
Despite covering many different asset classes and having various structures
and regulations, all financial markets work essentially by bringing together buyers and
This document is the property of PHINMA EDUCATION 8
FIN 032 : Special Topics in Financial Management
Module #2 Student Activity Sheet
Name: __________________________________________ Class number: ______
Section: __________ Schedule: _____________________ Date: _____________
sellers in some asset or contract and allowing them to trade with one another. This is
often done through an auction or price-discovery mechanism.
3. What Are the Main Functions of Financial Markets?
Financial markets exist for several reasons, but the most fundamental function
is to allow for the efficient allocation of capital and assets in a financial economy. By
allowing a free market for the flow of capital, financial obligations, and money, the
financial markets make the global economy run more smoothly while allowing
investors to participate in capital gains over time.
4. Are Capital Markets the Same as Financial Markets?
While there is a great deal of overlap at times, there are some fundamental
distinctions between these two terms. Financial markets encompass a broad range of
venues where people and organizations exchange assets, securities, and contracts
with one another, and are often secondary markets. Capital markets, on the other
hand, are used primarily to raise funding, usually for a firm, to be used in operations,
or for growth.
5. What Is a Primary vs. Secondary Market?
New capital is raised via stocks and bonds that are issued and sold to investors
in the primary capital market, while traders and investors subsequently buy and sell
those securities among one another on the secondary capital market but where no
new capital is received by the firm.
Thinking about Learning
A. Work Tracker
You are done with this session! Let’s track your progress. Shade the session
number you just completed.
Period 1 Period 2 Period 3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
This document is the property of PHINMA EDUCATION 9
