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Financial Market PDF generatPDF generated at: Wed, 20 Feb 2013 06:31:40 UTCp://code.pediapress.com/ for more information. Contents Articles Financial market 1 Market 7 Exchange (organized market) 15 Security (finance) 16 References Article Sources and Contributors 24 Image Sources, Licenses and Contributors 25 Article Licenses License 26 Financial market 1 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) and specialized markets (where only one commodity is traded). Markets work by placing many interested buyers and sellers, including households, firms, and government agencies, in one "place", thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy. 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) – and are used to match those who want capital to those who have it. Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends. This return on investment is a necessary part of markets to ensure that funds are supplied to them. Definition In economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them. The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange. This may be a physical location (like the NYSE, BSE, NSE) or an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange. Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, similar to stock exchanges. Financial markets can be domestic or they can be international. Financial market 2 Types of financial 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, as per examples in the breakdown below. • 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. • 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. The capital markets may also be divided into primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets allow investors to buy and sell existing securities. The transactions in primary markets exist between issuers and investors, while in secondary market transactions exist among investors. Liquidity is a crucial aspect of securities that are traded in secondary markets. Liquidity refers to the ease with which a security can be sold without a loss of value. Securities with an active secondary market mean that there are many buyers and sellers at a given point in time. Investors benefit from liquid securities because they can sell their assets whenever they want; an illiquid security may force the seller to get rid of their asset at a large discount. The financial market is broadly divided into 2 types: 1) Capital Market and 2) Money market. The Capital market is subdivided into 1) primary market and 2) Secondary market. Raising capital Financial markets attract funds from investors and channel them to corporations—they thus allow corporations to finance their operations and achieve growth. Money markets allow firms to borrow funds on a short term basis, while capital markets allow corporations to gain long-term funding to support expansion. Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks, Investment Banks, and Boutique Investment Banks can help in this process. Banks take deposits from those who have money to save. They can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages. More complex transactions than a simple bank deposit require markets where lenders and their agents can meet borrowers and their agents, and where existing borrowing or lending commitments can be sold on to other parties. A good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its existing shares can be bought or sold. The following table illustrates where financial markets fit in the relationship between lenders and borrowers: Financial market 3 Relationship between lenders and borrowers Lenders Financial Intermediaries Financial Markets Borrowers Individuals Banks Interbank Individuals Companies Insurance Companies Stock Exchange Companies Pension Funds Money Market Central Mutual Funds Bond Market Government Foreign Exchange Municipalities Public Corporations Lenders Who have enough money to lend or to give someone money from own pocket at the condition of getting back the principal amount or with some interest or charge, is the Lender. Individuals & Doubles Many individuals are not aware that they are lenders, but almost everybody does lend money in many ways. A person lends money when he or she: • puts money in a savings account at a bank; • contributes to a pension plan; • pays premiums to an insurance company; • invests in government bonds; or • invests in company shares. Companies Companies tend to be borrowers of capital. When companies have surplus cash that is not needed for a short period of time, they may seek to make money from their cash surplus by lending it via short term markets called money markets. There are a few companies that have very strong cash flows. These companies tend to be lenders rather than borrowers. Such companies may decide to return cash to surplus (e.g. via a share buyback.) Alternatively, they may seek to make more money on their cash by lending it (e.g. investing in bonds and stocks). Borrowers • Individuals borrow money via bankers' loans for short term needs or longer term mortgages to help finance a house purchase. • Companies borrow money to aid short term or long term cash flows. They also borrow to fund modernization or future business expansion. • Governments often find their spending requirements exceed their tax revenues. To make up this difference, they need to borrow. Governments also borrow on behalf of nationalized industries, municipalities, local authorities and other public sector bodies. In the UK, the total borrowing requirement is often referred to as the Public sector net cash requirement (PSNCR). Governments borrow by issuing bonds. In the UK, the government also borrows from individuals by offering bank accounts and Premium Bonds. Government debt seems to be permanent. Indeed the debt seemingly expands rather than being paid off. One strategy used by governments to reduce the value of the debt is to influence inflation. Municipalities and local authorities may borrow in their own name as well as receiving funding from national governments. In the UK, this would cover an authority like Hampshire County Council. Financial market 4 Public Corporations typically include nationalized industries. These may include the postal services, railway companies and utility companies. Many borrowers have difficulty raising money locally. They need to borrow internationally with the aid of Foreign exchange markets. Borrowers having similar needs can form into a group of borrowers. They can also take an organizational form like Mutual Funds. They can provide mortgage on weight basis. The main advantage is that this lowers the cost of their borrowings. Derivative products During the 1980s and 1990s, a major growth sector in financial markets is the trade in so called derivative products, or derivatives for short. In the financial markets, stock prices, bond prices, currency rates, interest rates and dividends go up and down, creating risk. Derivative products are financial products which are used to control risk or paradoxically exploit  risk. It is also called financial economics. Derivative products or instruments help the issuers to gain an unusual profit from issuing the instruments. For using the help of these products a contract has to be made. Derivative contracts are mainly 3 types: 1. Future Contracts 2. Forward Contracts 3. Option Contracts. Currency markets Seemingly, the most obvious buyers and sellers of currency are importers and exporters of goods. While this may have been true in the distant past, when international trade created the demand for currency markets, importers and exporters now represent only 1/32 of foreign exchange dealing, according to the Bank for International  Settlements. The picture of foreign currency transactions today shows: • Banks/Institutions • Speculators • Government spending (for example, military bases abroad) • Importers/Exporters • Tourists Analysis of financial markets See Statistical analysis of financial markets, statistical finance Much effort has gone into the study of financial markets and how prices vary with time. Charles Dow, one of the founders of Dow Jones & Company and The Wall Street Journal, enunciated a set of ideas on the subject which are now called Dow Theory. This is the basis of the so-called technical analysis method of attempting to predict future changes. One of the tenets of "technical analysis" is that market trends give an indication of the future, at least in the short term. The claims of the technical analysts are disputed by many academics, who claim that the evidence points rather to the random walk hypothesis, which states that the next change is not correlated to the last change. In recent years the rise of algorithmic and high-frequency program trading has seen the adoption of momentum, ultra-short term moving average and other similar strategies which are based on technical as opposed to fundamental or theoretical concepts of market Behaviour. The scale of changes in price over some unit of time is called the volatility. It was discovered by Benoît Mandelbrot that changes in prices do not follow a Gaussian distribution, but are rather modeled better by Lévy stable distributions. The scale of change, or volatility, depends on the length of the time unit to a power a bit more than 1/2. Financial market 5 Large changes up or down are more likely than what one would calculate using a Gaussian distribution with an estimated standard deviation. Financial market slang • Poison pill, when a company issues more shares to prevent being bought out by another company, thereby increasing the number of outstanding shares to be bought by the hostile company making the bid to establish majority. • Quant, a quantitative analyst with a PhD (and above) level of training in mathematics and statistical methods. • Rocket scientist, a financial consultant at the zenith of mathematical and computer programming skill. They are able to invent derivatives of high complexity and construct sophisticated pricing models. They generally handle the most advanced computing techniques adopted by the financial markets since the early 1980s. Typically, they are physicists and engineers by training; rocket scientists do not necessarily build rockets for a living. • White Knight, a friendly party in a takeover bid. Used to describe a party that buys the shares of one organization to help prevent against a hostile takeover of that organization by another party. • round-tripping • smurfing • Spread, the difference between the highest bid and the lowest offer. Role (Financial system and the economy) One of the important requisite for the accelerated development of an economy is the existence of a dynamic financial market. A financial market helps the economy in the following manner. • Saving mobilization: Obtaining funds from the savers or surplus units such as household individuals, business firms, public sector units, central government, state governments etc. is an important role played by financial markets. • Investment: Financial markets play a crucial role in arranging to invest funds thus collected in those units which are in need of the same. • National Growth: An important role played by financial market is that, they contributed to a nations growth by ensuring unfettered flow of surplus funds to deficit units. Flow of funds for productive purposes is also made possible. • Entrepreneurship growth: Financial market contribute to the development of the entrepreneurial claw by making available the necessary financial resources. • Industrial development: The different components of financial markets help an accelerated growth of industrial and economic development of a country, thus contributing to raising the standard of living and the society of well-being. Functions of Financial Markets • Intermediary Functions: The intermediary functions of a financial markets include the following: • Transfer of Resources: Financial markets facilitate the transfer of real economic resources from lenders to ultimate borrowers. • Enhancing income: Financial markets allow lenders to earn interest or dividend on their surplus invisible funds, thus contributing to the enhancement of the individual and the national income. • Productive usage: Financial markets allow for the productive use of the funds borrowed. The enhancing the income and the gross national production. • Capital Formation: Financial markets provide a channel through which new savings flow to aid capital formation of a country. Financial market 6 • Price determination: Financial markets allow for the determination of price of the traded financial assets through the interaction of buyers and sellers. They provide a sign for the allocation of funds in the economy based on the demand and supply through the mechanism called price discovery process. • Sale Mechanism: Financial markets provide a mechanism for selling of a financial asset by an investor so as to offer the benefit of marketability and liquidity of such assets. • Information: The activities of the participants in the financial market result in the generation and the consequent dissemination of information to the various segments of the market. So as to reduce the cost of transaction of financial assets. • Financial Functions • Providing the borrower with funds so as to enable them to carry out their investment plans. • Providing the lenders with earning assets so as to enable them to earn wealth by deploying the assets in production debentures. • Providing liquidity in the market so as to facilitate trading of funds. Constituents of Financial Market Based on market levels • Primary market: Primary market is a market for new issues or new financial claims. Hence it’s also called new issue market. The primary market deals with those securities which are issued to the public for the first time. • Secondary market: It’s a market for secondary sale of securities. In other words, securities which have already passed through the new issue market are traded in this market. Generally, such securities are quoted in the stock exchange and it provides a continuous and regular market for buying and selling of securities. Based on security types • Money market: Money market is a market for dealing with financial assets and securities which have a maturity period of up to one year. In other words, it’s a market for purely short term funds. • Capital market: A capital market is a market for financial assets which have a long or indefinite maturity. Generally it deals with long term securities which have a maturity period of above one year. Capital market may be further divided in to: (a) industrial securities market (b) Govt. securities market and (c) long term loans market. • Equity markets: A market where ownership of securities are issued and subscribed is known as equity market. An example of a secondary equity market for shares is the Bombay stock exchange. • Debt market: The market where funds are borrowed and lent is known as debt market. Arrangements are made in such a way that the borrowers agree to pay the lender the original amount of the loan plus some specified amount of interest. • Derivative markets: • Financial service market: A market that comprises participants such as commercial banks that provide various financial services like ATM. Credit cards. Credit rating, stock broking etc. is known as financial service market. Individuals and firms use financial services markets, to purchase services that enhance the working of debt and equity markets. • Depository markets: A depository market consist of depository institutions that accept deposit from individuals and firms and uses these funds to participate in the debt market, by giving loans or purchasing other debt instruments such as treasure bills. • Non-Depository market: Non-depository market carry out various functions in financial markets ranging from financial intermediary to selling, insurance etc. The various constituency in non-depositary markets are mutual funds, insurance companies, pension funds, brokerage firms etc. Financial market 7 Notes  Robert E. Wright and Vincenzo Quadrini. Money and Banking: “Chapter 2, Section 4: Financial Markets.” pp. 3 (http://www.saylor.org/ site/wp-content/uploads/2012/06/ECON302-1.1-1st.pdf) Accessed June 20, 2012  Steven Valdez, An Introduction To Global Financial Markets References • T.E. Copeland, J.F. Weston (1988): Financial Theory and Corporate Policy, Addison-Wesley, West Sussex (ISBN 978-0321223531) • E.J. Elton, M.J. Gruber, S.J. Brown, W.N. Goetzmann (2003): Modern Portfolio Theory and Investment Analysis, John Wiley & Sons, New York (ISBN 978-0470050828) • E.F. Fama (1976): Foundations of Finance, Basic Books Inc., New York (ISBN 978-0465024995) • Marc M. Groz (2009): Forbes Guide to the Markets, John Wiley & Sons, Inc., New York (ISBN 978-0470463383) • R.C. Merton (1992): Continuous-Time Finance, Blackwell Publishers Inc. (ISBN 978-0631185086) • Keith Pilbeam (2010) Finance and Financial Markets, Palgrave (ISBN 978-0230233218) • Steven Valdez, An Introduction To Global Financial Markets, Macmillan Press Ltd. (ISBN 0-333-76447-1) • The Business Finance Market: A Survey, Industrial Systems Research Publications, Manchester (UK), new edition 2002 (ISBN 978-0-906321-19-5) External links • Financial Markets with Yale Professor Robert Shiller (http://oyc.yale.edu/economics/financial-markets/) Market A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers. It can be said that a market is the process by which the prices of goods and services are established. For a market to be competitive, there must be more than a single buyer or seller. It has been suggested that two people may trade, San Juan de Dios Market in Guadalajara but it takes at least three persons to have a market, so that there is competition on at least one of its two sides.1]However, competitive markets, as understood in formal economic theory, rely on much larger numbers of both buyers and sellers. A market with single seller and multiple buyers is a monopoly. A market with a single buyer and multiple sellers is a monopsony. These are the extremes of imperfect competition. Markets vary in form, scale (volume and geographic reach), location, and types of participants, as well as the types of goods and services traded. Examples include: • Physical retail markets, such as local farmers' markets (which are usually held in town squares or parking lots on an ongoing or occasional basis), shopping centers and shopping malls • (Non-physical) internet markets (see electronic commerce) • Ad hoc auction markets Market 8 • Markets for intermediate goods used in production of other goods and services • Labor markets • International currency and commodity markets • Stock markets, for the exchange of shares in corporations • Artificial markets created by regulation to exchange rights for derivatives that have been designed to ameliorate externalities, such as pollution permits (see carbon trading) • Illegal markets such as the market for illicit drugs, arms or pirated products In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is a transaction. Market participants consist of all the buyers and sellers of a good who influence its price. This influence is a major study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand. There are two roles in markets, buyers and sellers. The market facilitates trade and enables the distribution and allocation of resources in a society. Markets allow any tradable item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights (cf. ownership) of services and goods. Types of markets Although many markets exist in the traditional sense — such as a marketplace — there are various other types of markets and various organizational structures to assist their functions. The nature of business transactions could define markets. Financial markets Financial markets facilitate the exchange of liquid assets. Most investors prefer investing in two markets, the stock markets and the bond markets. NYSE, AMEX, and the NASDAQ are the most common stock markets in the US. Futures markets, where contracts are exchanged regarding the future delivery of goods are often an outgrowth of general commodity markets. Currency markets are used to trade one currency for another, and are often used for speculation on currency exchange rates. The money market is the name for the global market for lending Corn Exchange in London circa 1809 and borrowing. Prediction markets Prediction markets are a type of speculative market in which the goods exchanged are futures on the occurrence of certain events. They apply the market dynamics to facilitate information aggregation. Organization of markets A market can be organized as an auction, as a private electronic market, as a commodity wholesale market, as a shopping center, as a complex institution such as a stock market, and as an informal discussion between two individuals. Markets of varying types can spontaneously arise whenever a party has interest in a good or service that some other party can provide. Hence there can be a market for cigarettes in correctional facilities, another for chewing gum in a playground, and yet another for contracts for the future delivery of a commodity. There can be black markets, where Market 9 a good is exchanged illegally and virtual markets, such as eBay, in which buyers and sellers do not physically interact during negotiation. There can also be markets for goods under a command economy despite pressure to repress them. Mechanisms of markets In economics, a market that runs under laissez-faire policies is a free market. It is "free" in the sense that the government makes no attempt to intervene through taxes, subsidies, minimum wages, price ceilings, etc. Market prices may be distorted by a seller or sellers with monopoly power, or a buyer with monopsony power. Such price distortions can have an adverse effect on market participant's welfare and reduce the efficiency of market outcomes. Also, the relative level of organization and negotiating power of buyers and sellers markedly affects the functioning of the market. Markets where price negotiations meet equilibrium though still do not arrive at desired outcomes for both sides are said to experience market failure. Markets are a system, and systems have structure. The structure of a well-functioning market is defined by the theory of perfect competition. Well-functioning markets of the real world are never perfect, but basic structural characteristics can be approximated for real world markets, for example: • many small buyers and sellers • buyers and sellers have equal access to information • products are comparable There exists a popular thought that free markets would have a structure of a perfect competition. The logic behind the thought is that market failures are thought to be caused by other exogenic systems, and after removing those exogenic systems ("freeing" the markets) the free markets could run without market failures. As an argument against such a logic there is a view that suggests that the source of market failures is inside the market system, so the removal of other interfering systems would not result in markets with a structure of perfect competition: capitalists don't want to enhance the structure of markets, just like a coach of a football team would influence the referees or would break the rules if he could while he is pursuing his target of winning the game. The capitalists are not enhancing the balance of their team versus the team of consumer-workers, so the market system needs a "referee" from outside that balances the game. The role of a "referee" of the market system is usually given to a democratic government. Liberty Market in Lahore, Pakistan. Market 10 Study of markets The study of actual existing markets made up of persons interacting in a place in diverse ways is widely seen as an antidote to abstract and all-encompassing concepts of “the market” and has historical precedent in the works of Fernand Braudel and Karl Polanyi. The latter term is now generally used in two ways: 1. "the market" denoting the abstract mechanisms whereby supply and demand confront each other and deals are made. In its place, reference to markets reflects ordinary experience and the  places, processes and institutions in which exchanges occurs. 2. "the market" signifying an integrated, all-encompassing and Cabbage market by Vaclav Maly  cohesive capitalist world economy. See Aspers (2011) for an overview of the research on markets. A widespread trend in economic history and sociology is skeptical of the idea that it is possible to develop a theory to capture an essence or unifying thread to markets.  For economic geographers, reference to regional, local, or commodity specific markets can serve to undermine assumptions of global integration, and highlight geographic variations in the structures, institutions, histories, path dependencies, forms of interaction and modes of self-understanding of agents in different spheres of market exchange. Reference to actual markets can show capitalism not A market in Râmnicu Vâlcea by Amedeo Preziosi as a totalizing force or completely encompassing mode of economic activity, but rather as "a set of economic practices scattered over a landscape, rather than a systemic concentration of  power". C. B. Macpherson identifies an underlying model of the market underlying Anglo-American liberal-democratic political economy and philosophy in the seventeenth and eighteenth centuries: Persons are cast as self-interested individuals, who enter into contractual relations with other such individuals, concerning the exchange of goods or personal capacities cast as commodities, An Afghan market teeming with vendors and shoppers with the motive of maximizing pecuniary interest. The state and its  governance systems are cast as outside of this framework. This model came to dominant economic thinking in the later nineteenth century, as economists such as Ricardo, Mill, Jevons, Walras and later neo-classical economics shifted from reference to geographically located marketplaces to an abstract "market". This tradition is continued in contemporary neoliberalism, where the market is held up as optimal for wealth creation and human freedom, and the states’ role imagined as minimal, reduced to that of upholding and keeping stable property rights, contract, and money supply. This allowed for boilerplate economic and  institutional restructuring under structural adjustment and post-Communist reconstruction. Market 11 Similar formalism occurs in a wide variety of social democratic and Marxist discourses that situate political action as antagonistic to the market. In particular, commodification theorists such as Georg Lukács insist that market relations necessarily lead to undue  exploitation of labour and so need to be opposed in toto. Pierre Bourdieu has suggested the market model is becoming self-realizing, in virtue of its wide acceptance in national and international institutions through the 1990s.  The formalist conception faces a number of insuperable difficulties, concerning the putatively global scope of the market to cover the entire Earth, Market in Portovenere, Italy in terms of penetration of particular economies, and in terms of whether particular claims about the subjects (individuals with pecuniary interest), objects (commodities), and modes of exchange (transactions) apply to any actually existing markets. A central theme of empirical analyses is the variation and proliferation of types of markets since the rise of capitalism and global scale economies. The Regulation school stresses the ways in which developed capitalist countries have implemented varying degrees and types of environmental, economic, and social regulation, taxation and public spending, fiscal policy and government provisioning of goods, all of which have transformed markets in uneven and geographical varied ways and created a Wetherby town’s market variety of mixed economies. Drawing on concepts of institutional variance and path dependency, varieties of capitalism theorists (such as Hall and Soskice) identify two dominant modes of economic ordering in the developed capitalist countries, "coordinated market economies" such as Germany and Japan, and an Anglo-American "liberal market economies". However, such approaches imply that the Anglo-American liberal market economies, in fact, operate in a matter close to the abstract notion of "the market". While Anglo-American countries have seen increasing introduction of neo-liberal forms of economic ordering, this has not led to simple convergence, but rather a variety of  hybrid institutional orderings. Rather, a variety of new markets Gómez Palacio city's municipal market have emerged, such as for carbon trading or rights to pollute. In some cases, such as emerging markets for water, different forms of privatization of different aspects of previously state run infrastructure have created hybrid private-public formations and graded degrees of commodification, commercialization, and privatization. Problematic for market formalism is the relationship between formal capitalist economic processes and a variety of alternative forms, ranging from semi-feudal and peasant economies widely operative in many developing economies, to informal markets, Market 12 barter systems, worker cooperatives, or illegal trades that occur in most developed countries. Practices of incorporation of non-Western peoples into global markets in the nineteenth and twentieth century did not merely result in the quashing of former social economic institutions. Rather, various modes of articulation arose between transformed and hybridized local traditions and social practices and the emergence world economy. So called capitalist markets, in fact, include and depend on a wide range of geographically situated economic practices that do not follow the market model. Economies are thus hybrids of market and  non-market elements. Helpful here is J. K. Gibson-Graham’s complex topology of the diversity of contemporary market economies describing different types of transactions, labour, and economic agents. Transactions can occur in underground markets (such as for marijuana) or be artificially protected (such as for patents). They can cover the sale WPA poster, 1937 of public goods under privatization schemes to co-operative exchanges and occur under varying degrees of monopoly power and state regulation. Likewise, there are a wide variety of economic agents, which engage in different types of transactions on different terms: One cannot assume the practices of a religious kindergarten, multinational corporation, state enterprise, or community-based cooperative can be subsumed under the same logic of calculability (pp. 53–78). This emphasis on proliferation can also be contrasted with continuing scholarly attempts to show underlying cohesive and structural similarities to different markets.  A prominent entry-point for challenging the market model's applicability concerns exchange transactions and the homo economicus assumption of self-interest maximization. As of 2012 a number of streams of economic sociological analysis of markets focus on the role of the social in transactions, and on the ways transactions involve social networks and relations of trust, cooperation and other bonds.Economic geographers in turn draw attention to the ways in exchange transactions occur against the backdrop of institutional, social and geographic processes, including class relations, uneven development, and historically contingent path-dependencies.  Michel Callon's concept of framing provides a useful schema: each economic act or transaction occurs against, incorporates and also re-performs a geographically and cultural specific complex of social histories, institutional arrangements, rules and connections. These network relations are simultaneously bracketed, so that persons and transactions may be disentangled from thick social bonds. The character of calculability is imposed upon agents as they come to work in markets and are "formatted" as calculative agencies. Market exchanges contain a history of struggle and contestation that produced actors predisposed to exchange under c An emerging theme worthy of further study is the interrelationship, interpenetrability and variations of concepts of persons, commodities, and modes of exchange under particular market formations. This is most pronounced in recent movement towards post-structuralist theorizing that draws on Foucault and Actor Network Theory and stress relational aspects of personhood, and dependence and integration into networks and practical systems. Commodity network approaches further both deconstruct and show alternatives to the market models concept of commodities. Here, both researchers and market actors are understood as reframing commodities in terms of processes and social and ecological relationships. Rather than a mere objectification of things traded, the complex network relationships of exchange in different markets calls on agents to alternatively deconstruct or “get with” the fetish of commodities. [17Gibson-Graham thus read a variety of alternative markets, for fair trade and organic foods, or those using Local Exchange Trading Systems as not only contributing to proliferation, but also forging new modes of ethical exchange and economic subjectivities. Market 13 In social systems theory (cf. Niklas Luhmann), markets are also conceptialized as inner environments of the economy. As horizon of all potential investment decisions the market represents the environment of the actually realized investment decisions. Such inner environments, however, can also be observed in further function systems of society like in political, scientific, religious or mass media systems.  Size parameters Market size can be given in terms of the number of buyers and sellers in a particular market  or in terms of the total exchange of money in the market, generally annually (per year). When given in terms of money, market size is often termed market value, but in a sense distinct from market value of individual products. For one and the same goods, there may be different (and generally increasing) market values at the production level, the wholesale level and the retail level. For example, the value of the global illicit drug market for the year 2003 was estimated by the United Nations to be US$13 billion at the production level, $94 billion at the wholesale level (taking seizures into account), and US$322 billion at the retail level (based on retail prices and taking seizures and other losses into  account). Notes  Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action (http://www.pearsonschool.com/index. cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4). Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 28. ISBN 0-13-063085-3. . ] Callon, M. (1998) "Introduction: The Embeddedness of Economic Markets in Economics." In The Laws of the Markets, edited by Michel Callon. Basic Blackwell/The Sociological Review pp 1-57 1998, p.2). ] (Aspers, Patrik (2011) "Markets" Cambridge Polity Press  Swedberg, Richard (1994) “Markets as Social Structures” The Handbook of Economic Sociology. Ed. Neil Smelser and Richard Swedberg. Princeton University Press. 255-2821994, p. 258)  Peck, J. (2005) “Economic Geographies in Space” Economic Geography 81(2) 129-175. ] (Gibson-Graham, J.K. (2006) Postcapitalist Politics. University of Minnesota Press,. p.2). ] (MacPherson, C.B. (1962) The Political Theory of Possessive Individualism: From Hobbes to Locke. Oxford Clarendon Press. p.3 ] (Swedberg, 1994, p. 258 ] Harvey, David (2005) A Short History of Neoliberalism Oxford University Press. ] Lukács, Georg. (1971) History and Class Consciousness. Trans. Rodney Livingstone. Merlin Press. London.p. 87 ] Bourdieu, Pierre (1999) Acts of Resistance: Against the Tyranny of the Market. The New Press.p. 95 ] Peck, supra, p. 154)  Bakker, Karen (2005) “Neoliberalizing Nature?: Market Environmentalism in water supply in England and Wales” Annals of the Association of American Geographers 95 (3), 542-565 ] (Mitchell, Timothy (2002) Rule of Experts. University of California Pressp. 270; Gibson-Graham 2006, supra pp. 53-78) ] Swedberg, 1994, p. 267  Martin, Ron (2000) "Institutional Approaches in Economic Geography", Handbook of Economic Geography. Ed. Eric Sheppard and Trevor J. Barnes. Blackwell Publishers.Peck, 2005  Hughes, Alex (2005) “Geographies of Exchange and Circulation: alternative trading spaces” Progress in Human Geography  (http://ssrn.com/abstract=2192754) (cf. Roth 2012) “Leaving commonplaces on the commonplace. Cornerstones of a polyphonic market theory,” Tamara. Critical Journal of Organization Inquiry, Vol. 10 No. 3, pp. 43-52.  investorwords.com > market size (http://www.investorwords.com/6576/market_size.html) Retrieved on April 17, 2010  United Nations, “2005 World Drug Report,” Office on Drugs and Crime, June 2005, pg. 16. (http://www.unodc.org/pdf/WDR_2005/ volume_1_web.pdf) Market 14 References • Aspers, Patrik (2011) Markets Cambridge: Polity Press. • Bakker, Karen (2005) “Neoliberalizing Nature?: Market Environmentalism in water supply in England and Wales” Annals of the Association of American Geographers 95 (3), 542-565. • Bourdieu, Pierre (1999) Acts of Resistance: Against the Tyranny of the Market. The New Press. • Callon, Michel (1998) "Introduction: The Embeddedness of Economic Markets in Economics." In The Laws of the Markets, edited by Michel Callon. Basic Blackwell/The Sociological Review pp 1–57 • Gibson-Graham, J.K. (2006) Postcapitalist Politics. University of Minnesota Press,. • Harvey, David (2005) A Short History of Neoliberalism Oxford University Press. • Hughes, Alex (2005) “Geographies of Exchange and Circulation: alternative trading spaces” Progress in Human Geography • Lukács, Georg. (1971) History and Class Consciousness. Trans. Rodney Livingstone. Merlin Press. London. • MacPherson, C.B. (1962) The Political Theory of Possessive Individualism: From Hobbes to Locke. Oxford Clarendon Press. • Marshall, A. (1961). Principles of Economics. C. W. Guillebaud, Ed. 2 Vol. London: Macmillan. • Martin, Ron (2000) “Institutional Approaches in Economic Geography” Handbook of Economic Geography. Ed. Eric Sheppard and Trevor J. Barnes. Blackwell Publishers. • Mitchell, Timothy (2002) Rule of Experts University of California Press.; • Peck, J. (2005) “Economic Geographies in Space” Economic Geography 81(2) 129-175. • Roth, S. (2012) "Leaving commonplaces on the commonplace. Cornerstones of a polyphonic market theory" Tamara. Critical Journal of Organization Inquiry 10(3) 43-52. • Swedberg, Richard (1994) “Markets as Social Structures” The Handbook of Economic Sociology. Ed. Neil Smelser and Richard Swedberg. Princeton University Press. 255-282. Sources • Microeconomics by Robert S. Pindyck, Daniel L. Rubinfeld External links • Qualitionary - Legal Definitions - Market (http://www.qualitionary.eu/index.php?title=Market) • Stock Market Forecast (http://www.swingtradingforecast.com/dow-jones-forecast/) . Exchange (organized market) 15 Exchange (organized market) An exchange (or bourse) is a highly organized market where (especially) tradable securities, commodities, foreign exchange, futures, and options contracts are sold and bought. Bourse The name is derived from the 13th-century inn named Ter Beurze in Bruges, Belgium where traders and foreign merchants from across Europe conducted business in the late medieval period. The building, which was established by Robert van der Buerze as a hostelry, had operated from 1285. Its managers became famous for offering judicious financial advice to the traders and merchants who frequented the building. This service became known as the "Beurze Purse" which is the basis of the word bourse, meaning an organised place of exchange. Eventually the building became solely a place for trading in commodities. The "Ter Beurze" (center) in Bruges. During the 18th century, the façade of the Ter Beurze was rebuilt with a wide frontage of pilasters. However, in 1947 it was restored to its original medieval appearance. Description Exchanges bring together brokers and dealers who buy and sell these objects. These various financial instruments can typically be sold either through the exchange, typically with the benefit of a clearinghouse to cover defaul or over-the-counter (OTC), where there is typically less protection against counterparty risk from clearinghouses although OTC clearinghouses have become more common over the years, with regulators placing pressure on the  OTC markets to clear and display trades openly. Exchanges can be subdivided: • by objects sold: • stock exchange or securities exchange • commodities exchange • foreign exchange market - is rare today in the form of a specialized institution • by type of trade: • classical exchange - for spot trades • futures exchange or futures and options exchange - for derivatives In practice, futures exchanges are usually commodity exchanges, i.e. all derivatives, including financial derivatives, are usually traded at commodity exchanges. This has historical reasons: the first exchanges were stock exchanges. In the 19th century, exchanges were opened to trade forward contracts on commodities. Exchange-traded forward contracts are called futures contracts. These commodity exchanges later started offering future contracts on other products, such as interest rates and shares, as well as options contracts. They are now generally known as futures exchanges. For details see: • stock exchange (securities exchange), List of stock exchanges, Category:Stock exchanges • commodity exchange (futures exchange), List of futures exchanges, Category:Futures exchanges • foreign exchange market Exchange (organized market) 16 Notes  Stock Exchanges are the most publicly recognized places for buying and selling shares. They are easily the single most important component of the secondary market for corporate shares. Over-the-Counter Options (http://beginnersinvest.about.com/od/stocksoptionswarrants/a/ over-the-counter-options.htm). About.com.  OTC Clearing 'FIX'ed Up (http://fixglobal.com/content/otc-clearing-âfixâed). FIXGlobal.  A Focus on OTC Clearing Innovation (https://www.theice.com/publicdocs/ice_trust/Global%20Investor%20Magazine.pdf). IntercontinentalExchange. References • Webster's New World Finance and Investment Dictionary • http://boersenlexikon.faz.net/boerse.htm • http://www.britannica.com/EBchecked/topic/128089/commodity-exchange External links • "Bourse". Collier's New Encyclopedia. 1921. Security (finance)  A security or financial instrument is a tradable asset of any kind. Securities are broadly categorized into: • debt securities (such as banknotes, bonds and debentures), • equity securities, e.g., common stocks; and, • derivative contracts, such as forwards, futures, options and swaps. The company or other entity issuing the security is called the issuer. A country's regulatory structure determines what qualifies as a security. For example, private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions. Securities may be represented by a certificate or, more typically, "non-certificated", that is in electronic or "book entry" only form. Certificates may be bearer, meaning they entitle the holder to rights under the security merely by holding the security, or registered, meaning they entitle the holder to rights only if he appears on a security register maintained by the issuer or an intermediary. They include shares of corporate stock or mutual funds, bonds issued by corporations or governmental agencies, stock options or other options, limited partnership units, and various other formal investment instruments that are negotiable and fungible. Classification Securities may be classified according to many categories or classification systems: • Currency of denomination • Ownership rights • Terms to maturity • Degree of liquidity • Income payments • Tax treatment • Credit rating • Industrial sector or "industry". ("Sector" often refers to a higher level or broader category, such as Consumer Discretionary, whereas "industry" often refers to a lower level classification, such as Consumer Appliances. See Industry for a discussion of some classification systems.) Security (finance) 17 • Region or country (such as country of incorporation, country of principal sales/market of its products or services, or country in which the principal securities exchange where it trades is located) • Market capitalization • State (typically for municipal or "tax-free" bonds in the U.S.) New capital Securities are the traditional way that commercial enterprises raise new capital. These may be an attractive alternative to bank loans depending on their pricing and market demand for particular characteristics. Another disadvantage of bank loans as a source of financing is that the bank may seek a measure of protection against default by the borrower via extensive financial covenants. Through securities, capital is provided by investors who purchase the securities upon their initial issuance. In a similar way, a government may issue securities to when it needs to increase government debt. Repackaging In recent decades, securities have been issued to repackage existing assets. In a traditional securitization, a financial institution may wish to remove assets from its balance sheet to achieve regulatory capital efficiencies (the informal ratio of output divided by capital expenditure) or to accelerate its receipt of cash flow from the original assets. Alternatively, an intermediary may wish to make a profit by acquiring financial assets and repackaging them in a way more attractive to investors. In other words, a basket of assets is typically contributed or placed into a separate legal entity such as a trust or SPV, which subsequently issues shares of equity interest to investors. This allows the sponsor entity to more easily raise capital for these assets as opposed to finding buyers to purchase directly such assets. Type of holder Investors in securities may be retail, i.e. members of the public investing other than by way of business. The greatest part of investment, in terms of volume, is wholesale, i.e. by financial institutions acting on their own account, or on behalf of clients. Important institutional investors include investment banks, insurance companies, pension funds and other managed funds. Investment The traditional economic function of the purchase of securities is investment, with the view to receiving income and/or achieving capital gain. Debt securities generally offer a higher rate of interest than bank deposits, and equities may offer the prospect of capital growth. Equity investment may also offer control of the business of the issuer. Debt holdings may also offer some measure of control to the investor if the company is a fledgling start-up or an old giant undergoing 'restructuring'. In these cases, if interest payments are missed, the creditors may take control of the company and liquidate it to recover some of their investment. Collateral The last decade has seen an enormous growth in the use of securities as collateral. Purchasing securities with borrowed money secured by other securities or cash itself is called "buying on margin". Where A is owed a debt or other obligation by B, A may require B to deliver property rights in securities to A, either at inception (transfer of title) or only in default (non-transfer-of-title institutional). For institutional loans, property rights are not transferred but nevertheless enable A to satisfy its claims in the event that B fails to make good on its obligations to A or otherwise becomes insolvent. Collateral arrangements are divided into two broad categories, namely security interests and outright collateral transfers. Commonly, commercial banks, investment banks, government agencies and other institutional investors such as mutual funds are significant collateral takers as well as providers. In Security (finance) 18 addition, private parties may utilize stocks or other securities as collateral for portfolio loans in securities lending scenarios. On the consumer level, loans against securities have grown into three distinct groups over the last decade: 1) Standard Institutional Loans, generally offering low loan-to-value with very strict call and coverage regimens, akin to standard margin loans; 2) Transfer-of-Title (ToT) Loans, typically provided by private parties where borrower ownership is completely extinguished save for the rights provided in the loan contract; and 3) Non-Transfer-of-Title Credit Line facilities where shares are not sold and they serve as assets in a standard lien-type line of cash credit. Of the three, transfer-of-title loans have fallen into the very high-risk category as the number of providers has dwindled as regulators have launched an industry-wide crackdown on transfer-of-title structures where the private lender may sell or sell short the securities to fund the loan. See sell short. Institutionally managed consumer securities-based loans, on the other hand, draw loan funds from the financial resources of the lending institution, not from the sale of the securities. Debt and equity Securities are traditionally divided into debt securities and equities (see also derivatives). Debt Debt securities may be called debentures, bonds, deposits, notes or commercial paper depending on their maturity and certain other characteristics. The holder of a debt security is typically entitled to the payment of principal and interest, together with other contractual rights under the terms of the issue, such as the right to receive certain information. Debt securities are generally issued for a fixed term and redeemable by the issuer at the end of that term. Debt securities may be protected by collateral or may be unsecured, and, if they are unsecured, may be contractually "senior" to other unsecured debt meaning their holders would have a priority in a bankruptcy of the issuer. Debt that is not senior is "subordinated". Corporate bonds represent the debt of commercial or industrial entities. Debentures have a long maturity, typically at least ten years, whereas notes have a shorter maturity. Commercial paper is a simple form of debt security that essentially represents a post-dated check with a maturity of not more than 270 days. Money market instruments are short term debt instruments that may have characteristics of deposit accounts, such as certificates of deposit, Accelerated Return Notes (ARN), and certain bills of exchange. They are highly liquid and are sometimes referred to as "near cash". Commercial paper is also often highly liquid. Euro debt securities are securities issued internationally outside their domestic market in a denomination different from that of the issuer's domicile. They include eurobonds and euronotes. Eurobonds are characteristically underwritten, and not secured, and interest is paid gross. A euronote may take the form of euro-commercial paper (ECP) or euro-certificates of deposit. Government bonds are medium or long term debt securities issued by sovereign governments or their agencies. Typically they carry a lower rate of interest than corporate bonds, and serve as a source of finance for governments. U.S. federal government bonds are called treasuries. Because of their liquidity and perceived low risk, treasuries are used to manage the money supply in the open market operations of non-US central banks. Sub-sovereign government bonds, known in the U.S. as municipal bonds, represent the debt of state, provincial, territorial, municipal or other governmental units other than sovereign governments. Supranational bonds represent the debt of international organizations such as the World Bank, the International Monetary Fund, regional multilateral development banks and others. Security (finance) 19 Equity An equity security is a share of equity interest in an entity such as the capital stock of a company, trust or partnership. The most common form of equity interest is common stock, although preferred equity is also a form of capital stock. The holder of an equity is a shareholder, owning a share, or fractional part of the issuer. Unlike debt securities, which typically require regular payments (interest) to the holder, equity securities are not entitled to any payment. In bankruptcy, they share only in the residual interest of the issuer after all obligations have
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