In the previous chapter, we established the basic building blocks of finance: money, value, and the key players within a firm. But these elements do not operate in a vacuum. They function within a vast and complex ecosystem of financial markets and institutions . This chapter provides a guided tour of this ecosystem, introducing the primary markets where securities are traded and the key institutions that make the financial world function. 2.1 S tock Markets Stock markets are perhaps the most visible and widely followed financial markets. They are the platforms where ownership in companies, in the form of shares or stock, is issued and traded. What They Are : A stock market is a centralized marketplace—physical or electronic—where buyers and sellers come together to trade shares of publiclyheld companies. These markets provide a regulated and transparent environment for price discovery. How They Function: Primary vs. Secondary Markets It is crucial to distinguish between two relate...
Welcome to the study of finance. Before we can explore the complexities of markets, valuation, and risk, we must first establish a solid understanding of the most fundamental building blocks. This chapter introduces the core concepts that underpin everything else: the nature of money , the basis of value, the role of key financial decision-makers, and the crucial distinction between finance and its close cousin, accounting. 1.1 An Overview on Money Money is so central to modern life that we rarely stop to consider what it actually is. It is not merely the coins in our pockets or the numbers on a screen; it is a profound social and economic technology. To understand finance, we must first understand the tool at its heart. The Three Core Functions of Money For anything to function effectively as money, it must fulfill three essential roles: A Medium of Exchange : This is money's primary function. It is what sellers generally accept and buyers generally use to pay for goods and ser...