Financial markets connect surplus units, whose income is greater than current spending, to deficit units, whose current spending is greater than income. They let savings become borrowing, investment and spending in the wider economy.

A simple way to picture the flow of funds is:

• Direct finance: investors buy securities issued by deficit units in financial markets.
• Indirect finance: savers place funds with intermediaries, which then lend or invest on their behalf.

Key markets include money markets for short-term debt, capital markets for longer-term finance, and foreign exchange markets for currency trading.