Financial products and financial markets

Abstract

We should not be content to have the salesman stand between us – the salesman who knows nothing of what he is selling save that he is charging a great deal too much for it. (Oscar Wilde, House Decoration .) Introduction This chapter takes on finance. The first part offers an overview of the major products in modern finance. It describes some of the possible complex characteristics of each of these products, and suggests tricks on how to take these particularities into account in data analysis. The second part of the chapter turns to the practical functioning of financial markets: who are the players who buy and sell, and how are the markets organized. This chapter is essentially a source of definitions and references, covering the basic knowledge necessary to understand our book as a whole, knowledge familiar to practitioners in finance, but perhaps new to people outside the field. More details on the all the subjects alluded to in this chapter can be found in standard textbooks (see further reading at the end of the chapter). Financial products Cash (Interbank market) Putting cash in the bank is the simplest form of investment. Banks pay interest rates on deposits as well as charge interest rates on loans. Interest is paid at the end of a given period, quoted in annual rate, although actual deposits and loans can have any lifetime.

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