1 of 23

THEORETICAL FOUNDATIONS OF THE FINANCIAL MARKET

  • Academic Presentation
  • Based on theoretical research

2 of 23

ABSTRACT

  • Financial markets play a crucial role in modern economies.
  • They ensure efficient allocation of financial resources,
  • promote investment activities, and support economic growth.

3 of 23

KEYWORDS

  • Financial market
  • Capital allocation
  • Financial theory
  • Market efficiency
  • Financial intermediation

4 of 23

INTRODUCTION

  • Financial markets are an integral part of the economic system.
  • They connect savers and investors, firms and governments.
  • Their development influences macroeconomic stability and growth.

5 of 23

EVOLUTION OF FINANCIAL MARKET THEORY

  • Early theories focused on capital and interest rates.
  • Modern theories emphasize information efficiency,
  • risk management, and behavioral factors.

6 of 23

CONCEPT AND ESSENCE OF FINANCIAL MARKET

  • System of economic relations for trading financial assets.
  • Transfers funds from surplus to deficit units.
  • Operates through institutional mechanisms.

7 of 23

INSTITUTIONAL NATURE OF FINANCIAL MARKETS

  • Not a physical place but an institutional environment.
  • Governed by legal norms, information flows, and behavior.
  • Depends on transparency and trust.

8 of 23

FUNCTIONS OF FINANCIAL MARKET

  • Mobilization of savings
  • Allocation of capital
  • Price discovery
  • Risk management
  • Economic growth

9 of 23

MOBILIZATION OF SAVINGS

  • Encourages households and firms to save.
  • Offers instruments with different risk–return profiles.

10 of 23

ALLOCATION OF CAPITAL

  • Directs resources to productive investments.
  • Improves overall economic efficiency.

11 of 23

STRUCTURE OF FINANCIAL MARKETS

  • Money market
  • Capital market
  • Foreign exchange market
  • Derivatives market

12 of 23

MONEY AND CAPITAL MARKETS

  • Money market – short-term instruments and liquidity.
  • Capital market – long-term financing through equity and debt.

13 of 23

CLASSICAL FINANCIAL MARKET THEORIES

  • Classical interest rate theory
  • Loanable funds theory
  • Keynesian perspective

14 of 23

EFFICIENT MARKET HYPOTHESIS (EMH)

  • Weak form – historical prices
  • Semi-strong form – public information
  • Strong form – all information

15 of 23

RISK AND RETURN THEORY

  • Risk–return tradeoff
  • Portfolio diversification
  • CAPM model

16 of 23

FINANCIAL INTERMEDIATION THEORY

  • Role of banks and financial institutions.
  • Reduction of transaction costs.
  • Mitigation of information asymmetry.

17 of 23

INFORMATION ASYMMETRY

  • Adverse selection – before transaction.
  • Moral hazard – after transaction.
  • Justifies regulation.

18 of 23

BEHAVIORAL FINANCE THEORY

  • Psychological biases affect decisions.
  • Overconfidence, herd behavior, loss aversion.
  • Explains market anomalies.

19 of 23

FINANCIAL MARKET REGULATION

  • Ensures market stability.
  • Protects investors.
  • Prevents systemic risk.

20 of 23

GLOBALIZATION OF FINANCIAL MARKETS

  • Increased capital mobility.
  • Greater interconnectedness.
  • Higher exposure to global shocks.

21 of 23

ROLE IN ECONOMIC DEVELOPMENT

  • Supports innovation and investment.
  • Promotes employment.
  • Enhances regional development.

22 of 23

MODERN CHALLENGES AND TRENDS

  • Digital finance and fintech.
  • Blockchain technologies.
  • Financial volatility and stability issues.

23 of 23

CONCLUSION

  • Financial market theories explain market behavior.
  • Classical and modern approaches complement each other.
  • Theoretical insights support sustainable development.