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Created on 16.05.2018

What is the “financial market”?

Imagine going to the market in your town or village on a Saturday. Goods are sold on different stalls. You choose the best and cheapest vegetables and pay the price agreed. You have a demand for vegetables, and the stallholder supplies them.

In exactly the same way as for goods, there is also a market for capital where trade is conducted on the basis of supply and demand – this is the financial market. This term covers all markets on which capital is traded. The most important distinction within the financial market is between the money market and the capital market.

Money market

This diagram shows a commercial bank (e.g. PostFinance) as a yellow house icon and its relationship to the Swiss National Bank (SNB), which is represented by a house icon with columns. Both icons have the corresponding labels, “commercial bank (e.g. PostFinance)” and “Swiss National Bank (SNB)”. The Swiss National Bank issues the commercial bank money, which is represented by an arrow pointing from the Swiss National Bank to the commercial bank and the accompanying text “money (credit)”. The Swiss National Bank receives interest from the commercial bank, which is represented by an arrow pointing from the commercial bank to the Swiss National Bank and the accompanying text “interest”.

Short-term money is traded on the money market. This includes all transactions with a maximum term of 12 months. Demand on the money market comes from banks, companies and investors. They borrow money from the Swiss National Bank commercial banks or companies. The interest rates on the money market are controlled by the Swiss National Bank in Switzerland.

Capital market

This diagram shows a stock exchange or a commercial bank (e.g. PostFinance) as a yellow house icon and their relationship to two investor groups, which are represented by two icons, each featuring two people. All the icons have the corresponding labels “stock exchange or commercial bank (e.g. PostFinance)” and “investor”. Investor group 1 provides the commercial bank with capital by purchasing shares, which is represented by an arrow pointing from investor group 1 to the commercial bank and the accompanying text “capital (share)”. Investor group 1 receives dividends for this from the commercial bank, which is represented by an arrow pointing from the commercial bank to investor group 1 and the accompanying text “dividend”. Investor group 2 provides the commercial bank with capital by purchasing bonds, which is represented by an arrow pointing from investor group 2 to the commercial bank and the accompanying text “capital (bonds)”. Investor group 2 receives interest for this from the commercial bank, which is represented by an arrow pointing from the commercial bank to investor group 2 and the accompanying text “interest”.

Medium- to long-term money is traded on the capital market. Companies raise most of their capital for forthcoming investment here by issuing shares and bonds. The federal government also uses the capital market for the long-term financing of its tasks.

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