The critical importance of the money, bond, stock and mortgage markets as potential investment options is highlighted in terms of their impact on the financial sector. A description on how each market interacts with each other, and the impact of interest rates on these markets are given to explain the linkages between each market, and how investors' choices would be affected.
Financial Markets and Their Instruments
There are three main types of investments, where one's money can hopefully generate some additional return: ownership investments, lending investments, and cash equivalents. Stock, money, bond, and mortgage markets fall under these three categories of investments.
Stocks fall under the ownership category, as they are outright ownership portions of a publicly listed company, or can include contracts outlining an ownership portion, such as futures or currency swaps. Nevertheless, they will not generate a profit unless one sells stocks at a higher price than their original price. A stock's performance is determined by market perception of the shares one may hold, which is basically how the company is viewed in its performance in the eyes of consumers. Real estate and owning a business can also be included under this category.
Bonds fall under this lending category, because one is essentially lending funds to the government or to companies, with the expectation of receiving a fixed interest payment (coupon rate) every 6 months typically. At the end of the bond's maturity date, which can range between 90 days ...
In this explanation, the characteristics of money, bond, stock and mortgage markets are given to highlight the attractiveness of using them as investment opportunities, as well as the risks and developments of selecting each type of investment. These markets all fall under one of three main types of investments- ownership investments, lending investments, and cash equivalents- and there are pros and cons to investing with each one of them. Additionally, the critical importance of the interest rate to all investment options shows how each one is interlinked with each other, whether in a linear or contrary manner, and what motivates an investor to change his/her investment tool from one market to another.