Question

What are the foundations of money and what are the foundations of financial markets? What are the similarities and differences between these two types of foundations?

Answer 1

Foundations of Money

1. Budgeting

2. Eliminate debts

3. Savings/ Investments

1. Budgeting

Budgeting is simply balancing the expense with the income. It is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do.

2. Eliminate debts

If you have debt, allocating some of your cash flow to paying down those balances helps in building a strong money foundation. Keeping good debts and avoiding bad debts is the key.

3. Savings/Investment

Savings is income not spent or deferred consumption. The saved income should not kept idle. It should invest in appropriate manner to generate more income from it.

Foundations of Financial Market

1. Primary and secondary market

2. Investment analysis and risk management

3. Banking products and services

4. Investment and relationship banking

1. Primary and secondary market

In a primary market, securities are created for the first time for investors to purchase.

The secondary market, also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold.

2. Investment analysis and risk managementst

Investment analysis is the process of evaluating an investment for profitability and risk. It ultimately has the purpose of measuring how the given Investment is a good fit for a portfolio.

Risk management is the identification, evaluation, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities.

3. Banking products and services

Bank provides various types of products and services to consumers for effective money management. These banks and there products and services is play an important role in financial markets.

4. Investment and relationship banking

Relationship banking is a strategy used by banks to offer a variety of different products, strengthen customer loyalty, and generate additional revenue. Small, mid-sized, and large money center banks all use relationship banking strategies.

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Financial markets is a system which uses money as an instrument. Hence the foundation of financial markets include all the financial products, services, institutions, intermediaries etc. But the foundation of money includes only the outflow and inflow of money.