Question

in institutional structure of international financial markets.

Answer 1

The International Financial Market is the place where financial wealth is traded between individuals (and between countries). It can be seen as a wide set of rules and institutions where assets are traded between agents in surplus and agents in deficit and where institutions lay down the rules.
The financial market comprises the markets strictu sensu (stock market, bond market, currency market, derivatives market, commodity market and money market), the institutions which work in them with different aims and functions (Central Bank, Ministry of Economy and Finance, etc), as well as direct/indirect policies orientated to making the market the place (not necessarily a physical place and not necessarily ruled but regulated) where the exchange between surplus and deficit units is carried out as efficiently as possible.

The structure of the financial market

All the national and international markets make up the financial market. It incorporates banks, pension/insurance/currency funds and many other economic institutions that help accumulate and redistribute money.

Being a complex system, the financial market has a multilevel structure including 5 market segments:

1. Foreign exchange market (Forex) or Currency market

It is the market in which the subject of its participants interaction is the currency and everything that is related to its equivalent. Derivative instruments may also serve as trading instruments (for example, currency CFDs). Depending on the form, the settlement there can be cash and non-cash; according to the transaction term, the market can be current (spot) and derivatives currency markets. Derivatives market contracts can be:

• Forward contracts. A forward contract is customized between two parties at an agreed price; intermediaries of the transaction are commercial banks, there are no guarantees.
• Futures feature pricing, based according to the movement of currency exchange rates , intermediary is an exchange, guarantees are the reserve deposit.
• Options and currency swaps.

Currency transactions can be performed both on the exchange and on the over-the-counter market (Forex Interbank Market, Forex).

2. Credit market

This market suggests a redistribution of spare funds from those who have them to those who do not have them. Unlike the investment market, the credit market is more complex (it has a three-tier structure) and has tighter requirements for participants to fulfill their obligations.

Credit market Levels:

• The central bank and commercial banks. Here, the central bank acts as a regulator. By means of loans, the central bank regulates the money supply, supports banks, facing temporary troubles, keeps the liquidity of banking system and covers the cash gaps.
• Commercial banks and their clients
• Credit relations between legal entities

3. Insurance market

It is a separate segment, as insurance companies are one of the main investors at the global level. Providing various kinds of insurance services, they accumulate capital, which they can temporarily invest in deposits, metals, and the stock market.

4. Investment market

It is a system based on free competition and partnerships between agents of investment activity. It has much in common with the stock market, where the funds are invested in securities, but it can also take the form of capital investments, fixed assets, etc. Simply put, the investment market provides investing money in any asset for the purpose of subsequent earnings over a period of time due to an increase in an asset price or dividend payments.

5. Stock market: securities

• It suggests a complex interaction between the market participants in terms of issuance and turnover of securities. Securities can be traded on both stock exchanges and beyond them. On the exchanges, you can trade only enlisted assets, i.e. which meet certain requirements. Assets can be:
• Stocks. They can be common stocks and preferred stocks. Holders of common stock typically have voting privileges, whereas holders of preferred stock may not. However, preferred stockholders receive a fixed dividend from the company, while common shareholders may or may not receive one, depending on the decisions of the board of directors.
• Bonds. Bonds can be (issuer - company), municipal (issuer - local authorities), state, international (for example, Eurobonds). Bonds can also be preferential (the holder will be among the first to receive money during the liquidation of the company) and subordinated (more profitable, but riskier). There is a gradation on the coupon rate and yield to maturity.