A financial market is a broad term defining a ‘forum’ where buyers and sellers can exchange various financial assets such as but not limited to stocks, bonds, currencies, options, and derivatives. The financial market is seen as a vital element of the capitalist economy model as it allows to generate capital formation and liquidity for firms and entrepreneurs. The financial market provides the infrastructure, structural guidelines, and regulations for companies to utilize traditional or their own unique financial instruments that can be used for sale or raising investment capital. Financial instruments are typically assets or capital packages that can be traded, ranging from traditional bonds and stocks on the market to more complex derivative instruments such as options and debt-based financial securities (Higgins, 2019).
A recent news article by Thompson & Riley describes the issues faced by the international bank Credit Suisse, taking a $4.7 billion loss due to the collapse of the U.S. hedge fund Archegos. This resulted in significant pretax loss as well as the outing of the top investment banker and chief risk officer executives at Credit Suisse. It seemed that Archegos borrowed money from Credit Suisse and the bank likely oversaw some asset management in the hedge fund which bought massive stock positions in stocks including media companies. However, once share prices dropped, they could not pay back lenders and Archegos imploded. As a result, Credit Suisse is seeing declining share price, regulator scrutiny, and other issues due to other similar scandals where the bank’s money is being used to back wrongful investment (Thompson & Riley, 2021). The story demonstrates various use of the financial market by involved stakeholders such as Credit Suisse, Archegos, investors and lenders for the Archegos, as well as shareholders of Credit Suisse. The use of various instruments such as debt notes, stock market investment, and asset management were being used. Furthermore, this incident and others in recent couple of years have highlighted the need for stronger regulation of the financial market as despite the increased scrutiny for lenders after the 2008 financial crisis, the reckless financial market behavior and manipulation that was once practiced by banks (i.e. Lehman Brothers) has not gone away.
Reference
Higgins, R. (2019). Analysis for financial management (12th ed.). McGraw-Hill.
Thompson, M., & Riley, C. (2021). Credit Suisse execs out as bank takes $4.7 billion hit from hedge fund collapse.CNN Business. Web.