The role of financial markets

This chapter describes the financial markets as a key to understanding financial systems: capital markets for shares and bonds, money markets, foreign exchange markets, derivatives markets, and other markets related to deposits, loans and pooled investment. For each of these markets, the focus is on their purpose and major players, and on financial intermediation activities. The chapter also describes the construction of tables that illustrate the interconnectedness between institutional sectors, and provides a brief description of the risk elements within the financial system and the ability of the financial accounts and balance sheets to capture such information.