Financial markets

Investments such as shares and bonds are bought and sold on "financial markets". So are currencies.

The term "capital markets" is often used for markets such as the NZX and NZDX where companies raise capital (money) by selling shares or bonds.

Another market is the "housing market", where property is bought or sold either privately or through a real estate agent.

Prices of shares, bonds, property and other investments can go up and down according to the supply and demand. Prices will go up if buyers are in the majority, down if more people want to sell. They tend to follow cycles of boom, slump and recovery.  

For example, economic recession may cause prices to go down because there are fewer buyers and more sellers. When the economy starts to recover, people feel more positive about the future and more people want to buy, which increases prices.

The financial markets can affect our lives in many different ways. In the case of the currency market, for example, as the exchange rate between the New Zealand dollar and overseas currency rises, the cost of imported goods drops. On the other hand, businesses that export goods may find it more difficult to sell their goods if the price to overseas buyers goes up or these businesses may earn less when revenue from overseas sales is converted into New Zealand dollars.

The stock market is a good barometer for the economy. If it slumps then an economic recession may be on its way or in progress. As share prices fall, companies may be experiencing weaker demand for their goods and services, which can lead to workers being made redundant. This in turn affects the amount of money people have to spend on goods and services.

Summary

• Financial markets enable businesses to raise money and individuals to  buy and sell investments.
• Individuals can trade shares, bonds, currencies, property and other investments.
• Capital markets provide money for business investment.
• These markets affect our lives directly and indirectly.