• Unit 1: Introduction to Financial Markets

    This unit introduces the nature of financial markets, their purpose, and their role in the global economy. In this unit, you will learn why financial markets play such a critical role in domestic economies, international trade, and international commerce.

    Completing this unit should take you approximately 2 hours.

    • Upon successful completion of this unit, you will be able to:

      • analyze the role of lenders and borrowers in financial markets;
      • compare methods of raising capital in the marketplace, such as IPOs, rights issue, and private placement; and
      • outline the main differences between debt and equity

    • 1.1: Financial Instruments

      • Overview of Investments and Markets Book

        In this section, you will learn about the different financial instruments and the difference between bonds and stocks. Bonds are debt instruments, while stocks are equity instruments. This section also discusses other financial instruments, like derivatives, commodities, and mutual funds.

      • Ownership Nature of Stock Page

        Stock ownership was traditionally handled by the issuance of physical certificates. Physical ownership is not common today; technology has replaced physical certificates or stocks with digital versions.

      • Control and Preemption Page

        This article discusses stakeholders' rights, from the nomination of directors to how new shares issued by the company can be acquired. Bear in mind that these rights are not simply awarded to stockholders; rather, stockholders' rights differ depending on the class of the stock they own. There are different classes of stocks, and each one has its own set of rights. These differ from one company to another. What set of rights do investors normally have when acquiring stocks?

      • The Difference between Debt and Equity Markets Book

        While you read this page, pay attention to the difference between equity and debt and how and when companies issue either instrument. One of the advantages of holding bonds over stocks is that bondholders have priority in being paid over stockholders. This happens because bondholders are technically loan providers rather than owners, as is the case with stakeholders. From a legal perspective, loan providers are on top of the hierarchy in receiving their rights should the company be liquidated. When would companies prefer issuing bonds rather than stocks? What are three differences between debt instruments and equity instruments?

      • Owning Stocks Book

        This section discusses where stocks are traded and the difference between primary and secondary stock markets. You will become familiar with IPOs (initial public offerings), which are essentially when a company issues stock for the first time. IPOs are crucial for understanding the difference between primary and secondary markets. What are the different classes of rights that come from each type of stock?

      • Owning Bonds Book

        So far, we've discussed stocks and the difference between stocks and bonds. However, we haven't elaborated on what bonds are and where they are traded. This section discusses bonds and the bond market. While you read, pay attention to how zero-coupon bonds, differed-coupon bonds, and split-coupon bonds differ. You will learn about municipal bonds, which are a way for governments, states, and municipalities to borrow money. Where are corporate bonds and government bonds traded?

    • 1.2: The Role of Capital Markets

      • The Stock and Bond Markets Book

        This article discusses over-the-counter (OTC) markets and their role within the primary and secondary markets we discussed earlier. OTC markets are not subject to the same regulations as primary markets. OTCs are considered secondary markets, like stock exchanges such as the New York Stock Exchange (NYSE). These two secondary markets differ in that OTCs are decentralized markets, like NASDAQ, while stock exchanges are centralized and allow traders to meet and conduct their trading activities. What are the different financial markets?

      • Financial Markets and Assets Book

        This article covers how companies raise money. As we discussed, this can be done by issuing stocks and bonds. Of course, those are not the only ways for a business to raise capital. Another option is borrowing from banks. There is an ongoing debate as to whether traded loans should be considered debt securities or not. For loans to be considered tradable debt instruments, the following criteria need to be considered:

        • "Loans which have become negotiable de facto should also be classified under securities other than shares" [1993 SNA (para. 11.75)]
        • "Loans that have become marketable in secondary markets should be reclassified under securities other than shares and should be valued on the basis of market prices or fair values in the same manner as other types of securities other than shares" [GFSM 2001 (para. 7.111)].

        How do bonds differ from bank loans?

      • Securities Markets Book

        So far, we've discussed primary and secondary markets and the role of issuers and end investors. However, there are more players in these markets, including brokers and investment bankers. What is their role within primary and secondary markets? How does online investing work?

    • 1.3: Governments and Municipalities

      • State and Local Governments Book

        This report expands on the topic of municipal bonds and discusses the different incentives attached to government bonds. These debt instruments are issued by states and government bodies to finance their investments and spending. In doing so, governments become lenders, which allows them to support specific sectors to help stimulate their economies. For example, how have some governments supported businesses during the coronavirus pandemic?

      • The Government's Role in Managing the Economy Page

        Read this article and pay attention to the difference between fiscal policy and monetary policy. Fiscal policy is directly related to government debt and financing. How do you think fiscal policy affects issuance of government bonds?

      • Understanding the Federal Debt Page

        So far, we discussed when and why governments borrow and lend money. Now, we'll touch on how governments actually borrow money and manage debt. Debt management is crucially important for governments, given that the money they pay in interest on bonds comes directly from taxpayers' money. Do you think the government's decision to issue a specific number of securities has an effect on their yield?

    • Unit 1 Study Resources

      This review video is an excellent way to review what you've learned so far and is presented by one of the professors who created the course.

    • Unit 1 Assessment

      • Unit 1 Assessment Quiz
        Receive a grade

        Take this assessment to see how well you understood this unit.

        • This assessment does not count towards your grade. It is just for practice!
        • You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
        • You can take this assessment as many times as you want, whenever you want.