Financial market

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Differentiation between money, capital and credit markets

The financial market is a generic term for markets where the trading of financial instruments takes place. The goods market is a complementary term .

General

Financial markets belong to the financial economy , goods markets to the real economy . Both are in a complementary interdependence because the real economy cannot exist without the money coming from the financial market and the financial markets also have real economic influences such as hedging due to expected changes in commodity prices.

Trading on the financial markets takes place by exchanging financial instruments for money or by exchanging financial instruments with one another. Market participants are all economic entities ( private households , companies and government agencies). Financial markets bring borrowers and lenders together directly or indirectly through financial intermediaries . As market prices act - depending on the nature of the sub-market - stock market prices or interest rates .

species

The financial market is divided into three sub-markets , namely the money market, capital market and foreign exchange market. In 1916 Erwin von Beckerath introduced the collective term for the credit market for money and capital markets.

Money market

The money supply is offset by the money demand on the money market . Trade objects are central bank balance , day and time deposits , repo and lending transactions , short term securities ( money market instruments ), facilities of Central Bank (z. B. main refinancing of the ECB ), money market derivatives ( forward rate agreements , overnight index swaps , money market futures ), treasury bills or Change . The price on the money market is the money market rate . The money market differs from the capital market primarily in terms of the maturity of the objects of sale. This classification was introduced in 1909 by the economist Arthur Spiethoff . On the money market, it concerns terms or maturities of up to two years, whereby the differentiation is made differently. The medium term (2–4 years) is partly still assigned to the money market in the specialist literature , but partly to the capital market.

Capital market

Those financial instruments that cannot be allocated to the money market are traded on the capital market. This applies to financial instruments with a term of at least 2 years. If, however, only interbank trade and the ECB are considered for the money market , then trade on the capital market is supplemented by medium-term loans ( Lombard and current account loans ) and money market papers ( commercial papers , certificates of deposits ) from credit institutions with non-banks . The national credit market is hardly organized and therefore has little market transparency . Loans are very individual and therefore difficult to trade. As a sub-market of the credit market, credit trading tries to use assignment clauses to transform previously non- transferable credits into transferable loan facilities .

Foreign exchange market

In the foreign exchange market, the supply of foreign exchange meets the demand for foreign exchange and is exchanged at the negotiated exchange rate . Foreign currencies can only be exchanged for domestic currency using book money . There are two different sub-markets here, on the one hand the execution of the transaction on the cash market in an immediate exchange for the domestic currency or on the other hand as a forward exchange transaction . Traders come into contact with one another through electronic trading systems, which also enable a quick reaction to data changes that have occurred, such as in arbitrage . Foreign exchange transactions are predominantly carried out over the counter.

Functions

The financial market also fulfills the batch size, deadline, risk and publicity transformation.

Lot size transformation

One of the tasks of the financial markets is batch size transformation. This means that if, for example, a market participant asks for a relatively large amount of money, this is made up of smaller amounts of money from the providers. A typical example of this is the accumulation of many small amounts of savings in order to finance large investments.

Maturity transformation

Maturity transformation is another task of the financial markets. It has the task of coordinating the deadline interests of the supplier and the customer. There are two different types of maturity transformation:

  • Transformation based on the capital commitment period (also called liquidity period transformation ): The commitment period of the possible capital for use and the capital invested differ.
  • Transformation based on the fixed interest periods: The period for which the interest on the available capital is determined differs from the fixed interest period on the capital invested. This can result in interest rate risks.

Risk transformation

Your task is to reconcile the different risk appetites of providers and buyers on the capital market. Options for this type of transformation are:

  • Risk reduction: This is done by combining several individual borrowers and distributing the existing risk to them independently of one another. The reduction is made possible by the fact that the borrower holds various contracts or creates new contracts by combining payment obligations.
  • Risk split: This means the split into differently structured contracts. The needs of borrowers and market participants are brought into harmony.

Disclosure transformation

The fourth and last task of financial markets is the transformation of publicity. Disclosure transformation is the term used to describe information processing by credit institutions, which process the extensive information on the creditworthiness of their borrowers as part of professional financial analyzes so that the investor can rely on the creditworthiness of the credit institution. This means that capital providers and buyers never come into personal contact. A disclosure obligation of the borrower is only to banks.

General market functions

The financial market also fulfills these general market functions :

  • Allocation function : This is understood to mean the allocation of scarce resources (time, raw materials, work, etc.) to the production process of goods, whereby the maxim applies to manufacture an optimal product with minimal use.
  • Coordination function : The fact that financial markets offer lenders and borrowers a forum for their activities means that these processes are coordinated in terms of time and location.
  • Selection function: It describes access restrictions imposed by the market so that only the right players meet in the market. Among other things, the creditworthiness of individual market participants is checked in financial markets .

Effects of financial crises on the real economy

The real economy is a complement to the financial sector because the latter provides value-added infrastructure. However, around 95% of added value comes from the real economy. The complementary interdependence between the financial and real economy is often used to explain financial crises . The financial crisis from 2007 onwards was mainly caused by a lack of or faulty risk management within the financial sector. This crisis spilled over the real economy. In economics, attention is drawn to the imbalances between the real and financial economies. While the global real economy was quantitatively 2: 1 superior to the financial sector around 1980, today it is clearly inferior at 1: 3.5. This considerable disproportionality expresses risk potential and shows that money capital is in abundance. While between 1872 and 1950 the risk premiums in the real economy and the financial economy were roughly the same (4.17% and 4.40%), they drifted significantly apart between 1951 and 2000 (2.55% and 7.43%). This indicates increasing market risks in the financial sector. The market risk is in this imbalance especially in an overshooting (overshooting) resulting speculative increased speculative bubbles that last until in the slower real economy, the new equilibrium is established. In order to reduce these risks, a national and supranational financial market supervisory authority should contribute to the regulation of the financial markets.

See also

literature

  • Lydia Krüger, Financial Markets and Development , in: Attac (ed.), Crash instead of Cash , Vienna, OGBVerlag, 2008, pp. 101–121 with additional references
  • Susanne Schmidt : Market without Morals - The Failure of the International Financial Elite , Vlg. Droemer Knaur, Munich 2010, ISBN 978-3-426-27541-2
  • Georg von Wallwitz, Odysseus and the weasel. A happy introduction to financial markets , Berlin, Berenberg Verlag 2011, ISBN 978-3-937834-48-1 .
  • Gischer, Horst, Bernhard Herz and Lukas Menkhoff, Money, Credit and Banks , Berlin and Heidelberg, Springer-Verlag 2012, ISBN 978-3-642-23256-5 .

Web links

Wiktionary: Finanzmarkt  - explanations of meanings, word origins, synonyms, translations

Individual evidence

  1. ↑ Erwin von Beckerath, Capital Market and Money Market , 1916, p. 52
  2. ^ Arthur Spiethoff, The external order of the money and capital market , in: Gustav von Schmoller (Ed.), Yearbook for Legislation, Administration and Economics in the German Empire, Issue 2, 1909, pp. 17 ff.
  3. ↑ Joachim von Spindler , Geldmarkt - Kapitalmarkt - Internationale Kreditmärkte , 1960, p. 34
  4. ^ Karl Friedrich Hagenmüller , Capital Market , in: Handwortbuch der Betriebswirtschaft, Volume II, 1962, Sp. 3008
  5. ↑ Heiko Schmolke / Anabel Ternès / Ian Towers, Forex currency trading , 2016, p. 23
  6. ↑ Horst Gräfer / Bettina Schiller / Sabrina Rösner, Financing: Fundamentals, Institutions, Instruments and Capital Market Theory , 2008, p. 39
  7. ↑ Horst Gräfer / Bettina Schiller / Sabrina Rösner, Financing: Fundamentals, Institutions, Instruments and Capital Market Theory , 2008, p. 39
  8. ↑ Wolfgang Weber / Rüdiger Kabst / Matthias Baum, Introduction to Business Administration , 2014, p. 258
  9. ^ Functions of markets. Retrieved March 12, 2015 .
  10. ↑ Horst Gischer / Bernhard Herz / Lukas Menkhoff, Money, Credit and Banks: An Introduction , 2012, p. 3
  11. ↑ Armin Günther, Complementor Relationship Management , 2014, p. 146 f.
  12. ^ Pahl-Rugenstein-Verlag, sheets for German and international politics , issues 1–4, 2009, p. 9
  13. ↑ Eugene Fama / Kenneth French , Business Conditions and Expected Returns on Stocks and Bonds , in: Journal of Financial Economics vol. 25, 1989, p. 23 ff.