Introduction: The Market Context

Financial capital can be defined as accumulated wealth that is available to create further wealth. This chapter describes the capital markets, which are places where those who require additional funds seek out others, who wish to invest their excess. They are also places where participants can manage and spread their risks. Originally, capital markets were physical spaces such as coffee houses and then purpose-built exchanges. In our day, capital markets participants may be located in different continents and conduct deals using advanced information technology. This chapter presents the operation of the capital markets, the market participants, the roles of the main financial intermediaries, and the products and techniques used to bring together the suppliers and users of financial capital in the modern world. It is also to a large extent about the management of risk. Risk takes many forms in the capital markets, and financial institutions play a critical role in assessing, managing, and distributing risk.