LECTURE # 10  The Global credit and Financial markets. Gold market

FINANCIAL MARKET  A financial market - is a market in which people and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods.tradesecuritiescommoditiesfungibletransaction costssupply and demand

 There are both: - general markets (where many commodities are traded) - specialized markets (where only one commodity is traded).

IN FINANCE, FINANCIAL MARKETS FACILITATE:FINANCE  The raising of capital (in the capital markets)capitalcapital markets  The transfer of risk (in the derivatives markets)riskderivatives markets  Price discovery Price discovery  Global transactions with integration of financial markets  The transfer of liquidity (in the money markets)liquiditymoney markets  International trade (in the currency markets) International tradecurrency markets

TYPES OF FINANCIAL MARKETS:  Within the financial sector, the term "financial markets" is often used to refer just to the markets that are used to raise finance:  for long term finance, the Capital markets;  for short term finance, the Money markets.  Another common use of the term is as a catchall for all the markets in the financial sector.

 Capital markets which consist of : Capital markets Stock marketsStock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.common stock Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof. Bond marketsbonds  Commodity markets, which facilitate the trading of commodities. Commodity markets  Money markets, which provide short term debt financing and investment. Money markets

GOLD MARKET  Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a way of diversifying risk. The gold market is subject to speculation as are other markets, especially through the use of futures contracts and derivatives. Gold price has shown a long term correlation with the price of crude oil. This suggests a reason why gold is sold off during economic weaknessprecious metalsgoldinvestmentspeculationfutures contractsderivativescrude oil

Derivatives marketsDerivatives markets, which provide instruments for the management of financial risk.financial  Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market. Futures marketsforward contractsforward market  Insurance markets, which facilitate the redistribution of various risks. Insurance markets  Foreign exchange markets, which facilitate the trading of foreign exchange. Foreign exchange marketsforeign exchange

GOLD MARKET CENTRAL BANK  Central banks and the International Monetary Fund play an important role in the gold price. At the end of 2004 central banks and official organizations held 19 percent of all above-ground gold as official gold reserves. [15] The ten-year Washington Agreement on Gold (WAG), which dates from September 1999, limits gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 500 tonnes a year.International Monetary Fundcentral banksofficial gold reserves [15]Washington Agreement on GoldBank for International Settlements

 European central banks, such as the Bank of England and Swiss National Bank, were key sellers of gold over this period. [17] In 2009, this agreement was extended for a further five years, but with a smaller annual sales limit of 400 tonnes.Bank of EnglandSwiss National Bank [17]

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