Financial markets are also referred to as capital markets. Since the Seagall Act adopted following the 1929 crisis, the deposit business in the United States had been separated from the financial business. The Seagall Act was repealed in 1999 to allow the Citigroup merger and the formation of banking giants. Banks now finance themselves as much by borrowing on the financial markets as they do with the deposits of their customers.
The financial transformation of short-term financing into long-term financing takes place within the framework of financial intermediation which itself uses the financial markets and directly through these markets. Businesses can either use banks to access financial markets or go directly to those markets.
Financial markets are the markets where transactions in financial assets are carried out ,
For transactions in financial assets were added the derivatives of these assets, which have grown considerably in relation to underlying assets. In addition to real assets, synthetic assets and indices have been added. The markets for these derivative products are the markets for derivative products or derivative markets.
The main financial markets are, in decreasing order of volume
debt markets , or credit markets , where debt securities are traded, which are interest rate markets. These markets can be broken down into two types of markets:
- the money market , for short-term debts (debt issued at less than one, two or three years). Negotiable debt securities are traded on this market.
- the bond market, for debts issued in the medium and long term in the form of bonds
- the foreign exchange market , or Forex, where currencies are traded
- the equity markets or securities are representative of the equity capital of issuing companies.
Financial markets are either organized markets or over-the-counter markets. These are wholesale markets.
The speakers are institutional. Financial markets were markets reserved for central banks and banks and insurers, but they are now open to businesses and even individuals. Collective management funds have become major players.
The financial markets thus bring together directly or indirectly the agents with positive savings (companies and households, with the savings of individuals , but also increasingly sovereign funds) who are the holders of the offer and the agents with negative savings. who are the funding applicants.
The possibility of exchange is based on a request for financing which presents the remuneration, risk and liquidity conditions which are acceptable to the liquidity holder. Agents in need of financing must have characteristics in their debt offer that are acceptable to agents who have financing possibilities.
The development of financial markets with structured financing techniques that strive to separate the risk associated with a debt and that of the debtor. It is about creating financial assets issued by special purpose entities with credit that is enhanced by different credit enhancement techniques. The financial asset is thus supposed to offer a high yield, justified by the level of credit of the debtor, and a reduced level of risk due to the enhancement of credit. Valuations are based on models which serve as the basis for methods of calculating values.
The line between debt and equity markets is made permeable by various factors. First of all, it involves the development of hybrid securities, financial instruments which are qualified as quasi-equity and subordination arrangements which create various levels between traditional debt and equities. In addition, arbitrageurs make transactions by playing on both types of market. This creates a distortion in particular with regard to those who can only intervene in the equity markets and who only have the information disseminated on these markets and do not have the information that is available to operators on the markets. debt markets.