Financial Markets Overview

Types of Markets:
- Money Market: short-term debt securities with maturity less than 1 year
- Capital Market: long-term debt and equity securities
- Foreign Exchange Market: exchange of currencies
- Derivatives Market: contracts derived from underlying assets
Financial Instruments:
- Stocks (Equity): ownership in a company
- Bonds (Debt): debt obligation with interest and principal repayment
- Mutual Funds: diversified portfolio of stocks, bonds, and other securities
- Derivatives: options, futures, and swaps

Goals of Financial Management:
- Maximize shareholder value
- Minimize risk
- Optimize capital structure
Financial Planning:
- Forecasting: predicting future financial outcomes
- Budgeting: allocating resources to achieve goals
- Capital Budgeting: evaluating investment opportunities
Risk Management:
- Identifying and assessing potential risks
- Implementing risk mitigation strategies

Concepts:
- Present Value (PV): current value of future cash flows
- Future Value (FV): expected value of cash flows at a future date
- Net Present Value (NPV): difference between PV and FV
Formulas:
- PV = FV / (1 + r)^n
- FV = PV x (1 + r)^n

Liquidity Ratios:
- Current Ratio: current assets / current liabilities
- Quick Ratio: (current assets - inventory) / current liabilities
Profitability Ratios:
- Gross Margin Ratio: (revenue - COGS) / revenue
- Return on Equity (ROE): net income / shareholder equity
Efficiency Ratios:
- Asset Turnover Ratio: revenue / total assets
- Inventory Turnover Ratio: COGS / average inventory

Money Market: deals with short-term debt securities with maturity less than 1 year, providing liquidity to corporates and individuals
Capital Market: long-term debt and equity securities are traded, facilitating capital formation for companies and investment opportunities for investors
Foreign Exchange Market: enables the exchange of currencies, facilitating international trade and investment
Derivatives Market: provides hedging and speculative opportunities through contracts derived from underlying assets like stocks, bonds, and commodities

Stocks (Equity): represent ownership in a company, giving shareholders a claim on its assets and profits
Bonds (Debt): debt obligation with interest and principal repayment, providing a regular income stream to bondholders
Mutual Funds: offer a diversified portfolio of stocks, bonds, and other securities, allowing investors to spread risk
Derivatives: include options, futures, and swaps, which can be used for hedging or speculation

Goals of Financial Management: maximize shareholder value, minimize risk, and optimize capital structure to achieve long-term sustainability
Financial Planning: forecasting, budgeting, and capital budgeting are essential to allocate resources efficiently and achieve business objectives
Risk Management: identifies and assesses potential risks, implementing mitigation strategies to minimize their impact

Present Value (PV): the current value of future cash flows, discounted to account for the time value of money
Future Value (FV): the expected value of cash flows at a future date, considering the opportunity cost of capital
Net Present Value (NPV): the difference between PV and FV, used to evaluate investment opportunities

Liquidity Ratios:
- Current Ratio: measures a company's ability to pay short-term debts, calculated by dividing current assets by current liabilities
- Quick Ratio: a more conservative measure of liquidity, excluding inventory from current assets
Profitability Ratios:
- Gross Margin Ratio: measures a company's profitability, calculated by dividing revenue minus COGS by revenue
- Return on Equity (ROE): evaluates a company's net income in relation to shareholder equity
Efficiency Ratios:
- Asset Turnover Ratio: measures a company's ability to generate revenue from its assets, calculated by dividing revenue by total assets
- Inventory Turnover Ratio: evaluates a company's inventory management, calculated by dividing COGS by average inventory