What are financial markets? Financial markets are any type of financial transaction that helps businesses grow and investors make money, commonly known as the stock market. There are three elements to the stock market: stocks, bonds, and commodities. “Investing in the stock market is a bet on the future and the future is what concerns the stock market the most. While current events such as natural and human made disasters can cause an immediate reaction in the stock market, what drives long-term trends is the future.

The stock market is all about what will economic and political conditions today mean to corporate profits in the future. Current events that shake the market, but have no long term effect on the economy or business climate are often shaken off and market conditions return to the previous conditions”. (Ken Little, About.com Guide).

Stocks are shares of ownership of a public corporation that are sold to investors to allow the companies to raise a lot of cash at once. The investors profit when the companies increase their earnings, which keeps the U.S. Economy growing. Mutual funds give you the ability to buy a lot of stocks at once. In one way, this makes them an easier tool to invest in than individual stocks. By reducing stock market volatility, they have also had a calming effect on the U.S. economy.

When stock prices go up, bond prices go down. There are many different types of bonds, including Treasury bonds, corporate bonds, and municipal bonds. Bonds also provide some of the liquidity that keeps the U.S. economy functioning smoothly. It is important to understand the relationship between Treasury bonds and Treasury bond yields. When bonds go down yields go up to compensate. When Treasury yields go up, so do mortgage interest rates, when Treasury values decline, so does the value of a dollar.

Oil is the most important