8. The Markets

Fundamentally speaking, financial market prices are a combination of the expected return value and the risk premium demanded by investors for the exchange. What this means in practice will depend on the underlying asset. Fixed income, currencies and commodities (FICC) typically trade on macrofactors. Equities distinguish themselves by offering an asset with no maturity, and a series of uncertain cash flows to the price that will be determined by many microeconomic factors too. Both equities and fixed income securities are capital assets, while currency is better thought of as a store of value, and commodities have an economic value for consumption or transfer instead. Financial derivatives exist for FICC and equities, and exploration of this area will round-off this important chapter.