A. Distinguish between physical asset markets and financial asset markets. What’s the difference between spot markets and futures markets? b. Distinguish between money markets and capital markets. What’s the difference between primary markets and secondary markets?
c. Differentiate between private and public markets. Why are financial markets essential for a healthy economy and economic growth?

a. Physical assets are tangible, they can be touched, seen, used. They generally lose value over time because they depreciate. On the other hand, financial assets are intangible, they only exist because documents say so. Their price can change if interest rates change of if market conditions change.

Spot markets are markets where securities, currencies or commodities are traded immediately. While futures markets represent the trading of securities, currencies or commodities at a future date.

b. Money markets are where investors trades short term securities, while capital markets are where stocks, bonds and other long term securities are traded.

Primary markets exist only when securities are issued for the first time, e.g. an IPO. The vast majority of trading occurs in secondary markets since a security can literally be traded hundreds of times and all of these operations, except for the initial issuance, take place in secondary markets.

c. Public markets are all the trading markets where publicly traded corporations exchange or trade securities, and anyone can buy them, e.g. NYSE, NASDAQ, etc. Private markets only involve trading of privately held securities, e.g. stocks of closely held corporations. Only certain investors can trade with private securities, they are not available to the general public.

Financial markets basically receive savings from private households and businesses, and they transfer them (as investments) to other companies that need these resources to operate and grow. There is a direct relationship between healthy financial markets and economic development.

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