This book is about the social and cultural study of finance, of the markets
and institutions used for financial transactions, and the trading of assets and
risks. The financial system controls and manages credit; in contemporary
societies, the ultimate users of real capital rely heavily on others (investors) to
provide the funds with which to acquire the resources they need. Investors
make the transfers of money to those seeking credit in the hope of reaping
profits at later points in time; the debts the receivers of the funds incur are
claims investors can make on future income and on economic output and
development. Characteristically, these claims (which take the form of company
shares, governments bonds, etc.) and their derivatives are marketed
and traded on financial markets—with the help of financial intermediaries
(e.g. banks, brokerage houses, insurance companies) who package the
deals, assume some of the risks, and facilitate the trading of claims and risks
among market participants. The existence of such markets allows participants
to sell claims and risks they no longer want, and to pursue additional
profits through clever trading. Financial markets, then, are a major, if not the
most important component of the credit mechanism in risk-based
economies. Economists regard them as constituting an efficient mechanism
that fulfills vital functions of, and for, the financial system: for instance,
they pool and transfer wealth for capital use, decrease the costs of finance
(through the elimination of banks as direct lenders), and spread and control
risks—risk being more widely distributed when credit is obtained in
financial markets through the splitting of shares and through derivative
products that can be used for hedging risky investments (e.g. Merton and
Bodie 1995: 4 f., 13–15).