[MUSIC PLAYING] Hello, this is Dr. Bob Nolley with this topic lesson on financial markets. A financial market is an aggregate, a collection of buyers and sellers of financial securities, commodities, and other sellable items, as well as the transactions between them. Examples of financial markets include capital markets, derivative markets, money markets, and currency markets.
Financial markets are important because without financial markets borrowers would have difficulty finding lenders themselves. Intermediaries like banks can help this process. Banks take deposits from those who have money to save. And individuals that aren't aware that they are lenders are providing capital, but many do lend money at least indirectly, for example when they put money in a savings account or contribute to a pension.
Intermediaries like banks can then lend money from this pool of deposited money in the form of loans to people that seek to borrow. 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. One example of this is the Stock Exchange.
There are many different ways to classify financial markets. For long term finance with longer maturities we use the capital markets. For short term finance, short term meaning anything up to one year, money markets are used. But we could take these long term capital markets and divide them even further into the bond market and the stock market.
Companies get financing through the issuing of shares of stock and the issuing of bonds. And another division between the capital markets is the primary market and the secondary market. In the primary market, underwriting firms like institutional bankers help companies find the market for their stock or bond issuances.
The primary market is where new securities are issued and companies receive the proceeds from the sale of their bonds or stocks. The secondary market is where investors like you or me trade. When we buy stocks in the market the company doesn't get the money that we spend to buy the shares or buy the bonds. They've already gotten their money for that.
The person that is holding those bonds or holding those shares at that moment gets the money that we spend. We trade in the secondary market. The primary market is for issuances in the first time. We've mentioned a lot about capital markets, and money markets, and stocks, and bonds, but there are other markets as well. There's the derivatives market in the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other assets.
And there are also currency markets like foreign exchange or forex. Markets enable currency conversion and determine the relative value of the world currencies. There are several terms that we often hear in the media when we talk about the markets. We hear the term a bull market, and that's a market that is trending upward. A bull market is associated with increasing investor confidence and increased investing in anticipation of future price increases.
And a bullish trend in the stock market often begins before an economic downturn shows clear signs of a recovery. The bull market shows up first. In the other direction is the bear market, which is a general decline in the stock market over a period of time. It's a transition from high investor optimism to widespread investor fear and pessimism.
There are also types of trends for the bulls and the bear markets. A primary trend is one that has broad support throughout the entire market and lasts for a year or longer. An even longer trend is a secular trend, which can last for five or up to 25 years and it's actually a series of primary trends. A secular bear market for example consists of smaller bull markets and larger bear markets.
And a secular bull market consists of larger bull markets but smaller bear markets. But over the long term, the secular market travels in that direction. It's often said that the markets are good to everyone, but in the long term. Here are some key takeaways from this lesson. Remember the definition of markets being the aggregate of buyers and sellers of financial securities.
Remember the different ways that we can classify the markets by short term and long term money market and capital, primary and secondary, and the other types of markets like foreign exchange and derivatives. And remember the market trends, the bull and the bear markets as well as primary and secular market trends. This concludes the lesson. Thanks for listening.
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