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.
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.
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.
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.