Financial Markets, Financial Instruments, and Interest Rates

Knowing the financial markets and instruments does not give financial managers a guarantee of success. However, this knowledge certainly gives them options when it comes to raising and borrowing money. Financial markets and financial instruments are a key part of business that take account of goals, risk tolerance, and time frame.

Some markets are best for short-term investments while others do best for long-term goals. How do companies raise money? How companies issue common stock and how debt agencies rate corporate bonds are important considerations. Respecting the power of inflation also helps you achieve your financial goals. Markets and instruments affect your daily life—they allow businesses to start and expand. They also allow individual investors to plan for their futures. Whether you are a financial manager, a student of finance, or someone who simply wants the best return on an investment, you will benefit from understanding financial markets, financial instruments, and interest rates.

This resource provides instruction for users to:

• Describe the different roles of financial institutions and financial markets
• Distinguish between the money market, capital market, primary market, and secondary market
• State the differences between organized exchange and the over-the-counter market
• Contrast equity versus debt
• Explain how common stock is issued Identify examples of corporate bonds
• Describe a yield curve and how each of the three basic theories explain its shape
• Identify the nominal rate of return, the real rate of return, the inflation premium and the risk premium
• Understand the relationship between corporate bond ratings and risk