Capital Markets and Money

Finance can be defined as the management of funds or capital in order to provide money for individuals, businesses, or the government. Debt and equity financing is the engine that keeps the economy of free market economies growing and expanding. Individuals who work within the specialties of finance, must constantly take three factors into account. These are time, money, and risk. And, are dependent on one another for indications that lead to decisions being made about how to allocate capital. Securities are instruments that represent value and are split between two categories: debt securities and equity securities. The former is comprised of debentures, bonds, and banknotes. The latter is comprised of common stocks and derivative contracts, which include futures, swaps, options, and forwards. Securities are presented either as a certificate or as electronic and/or paper statements.

Securities can be traded in money markets. These are short-term markets for lending and borrowing. Liquidity is the function of being able to change an asset to cash with negligible loss of value. The money markets provide the venue for these trades to take place within the context of the global financial system. Treasury bills mature in less than 12 months and are very low risk, which is why many flock to them in tough economic times. A promissory note is another term for commercial paper sold and maturing no later than 270 days by corporations so that they are able to make short-term debt payments, such as periodic payments to employees. However, only corporations with high credit ratings issue these, due to the cost prohibitive nature of the status of firms with lower ratings.

Securities can also be traded in capital markets, such as the stock & bond markets, and are designed to provide long-term funding for the government or businesses. The Securities and Exchange commissions within industrialized countries regulate, monitor, and enforce when necessary, with the aim of ensuring that intentional deception against investors and traders is minimized, and is dealt with appropriately by the legal system. In the United States, the stock market includes securities traded on the NASDAQ, Amex, and NYSE Euronext, headquartered in New York and Paris. In Europe, the most popular exchanges are the Deutsche Borse and the London Stock Exchange.

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