Financial Markets & New Economy

NODE 01

Financial System

>>

• Connects Savers with Borrowers/Investors.
• Savings → Finance → Invest → Production.

NODE 02

Financial Assets

• Represents a financial claim.
• Shares, bonds, deposits. My asset = your liability.

NODE 03

Financial Market

• System where assets are issued/traded.
• Money, Capital, FX, Derivatives markets.

NODE 04

Money Market

• Short-term instruments, high liquidity.
• Treasury bills, commercial paper, CDs.

NODE 05

Capital Market

• Longer-term financing (equity, bonds).
• Connects investors ↔ companies/govts.

NODE 06

Primary Market

→

• Newly issued securities sold to investors.
• Company receives the funds.

NODE 07

Secondary Market

→

• Existing securities traded between investors.
• Company does not receive purchase money here.

NODE 08

Stock / Equity

• Represents ownership interest in a company.
• Returns: dividends + capital gains (not guaranteed).

NODE 09

Dividend

• Distribution of part of company's profits.
• To eligible shareholders.

NODE 10

Capital Gain

• Asset sold for MORE than acquisition cost.
• Buy at 100, sell at 130 → Gain = 30.

NODE 11

Capital Loss

• Asset sold BELOW its acquisition cost.
• Selling price < Purchase price.

NODE 12

Bonds

• Debt instrument. Investor lends, issuer repays.
• Returns: interest/coupons + principal.

NODE 13

Govt Securities

BOND

• Governments issue to raise funds.
• T-bills, government bonds.

NODE 14

Corporate Bonds

BOND

• Companies raise debt capital.
• Company has contractual obligations to lender.

NODE 15

Equity vs Debt

OWNERVSLENDER

• Equity = Ownership claim (variable returns).
• Debt = Creditor claim (contractual payments).

NODE 16

Risk & Return

RSK↑RET↑

• Higher expected return ↔ higher risk.
• Business, credit, market, liquidity risks.

NODE 17

Diversification

• Spreading investments across different assets.
• Lowers unsystematic portfolio risk.

NODE 18

Portfolio

• Collection of investments (Equity, bonds, cash).
• Asset allocation determines wealth distribution.

NODE 19

Mutual Funds

• Pools money from multiple investors.
• Diversification + professional management.

NODE 20

Index

• Tracks performance of selected group of securities.
• E.g., NIFTY 50, SENSEX. Not the entire market.

NODE 21

Market Cap

PRICE× SHARES

• Share price × Shares outstanding.
• Market value of company's equity (Large/Mid/Small cap).

NODE 22

Bull & Bear Market

↗vs↘

• Bull: Broadly rising prices/sentiment.
• Bear: Broadly falling prices/sentiment.

NODE 23

Volatility

• Degree of variation in asset prices.
• High vol = larger/faster price movements.

NODE 24

Liquidity in Mkts

• Ability to buy/sell easily without large price impact.
• Influenced by volume, participants, info.

NODE 25

SEBI

• Securities and Exchange Board of India.
• Investor protection, market regulation/development.

NODE 26

IPO

→

• Initial Public Offering.
• Private company offers shares to public for first time.

NODE 27

Startup

🚀

• Young business developing scalable product.
• Under conditions of significant uncertainty/innovation.

NODE 28

Entrepreneurship

🧠

💡

• Identifying opportunities, taking risk.
• Organising resources, innovating. Connects to Realm 02.

NODE 29

Funding Stages

• Bootstrap → Family → Angel → Seed → VC → Growth → IPO.

NODE 30

Angel Investors

• Individuals investing own capital in early-stage biz.
• Provide capital, expertise, networks.

NODE 31

Venture Capital

• Professional investment in high-growth businesses.
• Seek high growth, equity ownership, eventual exit.

NODE 32

Private Equity

• Investment in privately held companies.
• Growth capital, buyouts, restructuring.

NODE 33

Valuation

• Estimating economic value of the company.
• Factors: revenue, growth, market size, risk, tech.

NODE 34

Unicorn

• Privately held startup valued at ≥ US$1 billion.
• Refers to valuation, not necessarily profitability.

NODE 35

Startup Failure

🚀

X

• Weak product-market fit, cash-flow problems.
• Entrepreneurship = opportunity + uncertainty + risk.

NODE 36

Platform Economy

BUYR

SELL

• Connects different user groups (buyers ↔ sellers).
• Reduces search/transaction costs.

NODE 37

Network Effect

• Value of platform increases as more users join.
• Creates powerful feedback loops.

NODE 38

Direct Net Effect

• Value increases because users directly interact.
• E.g., Messaging networks (more people to talk to).

NODE 39

Indirect Net Effect

→

• More users on one side attract participants on other.
• Buyers ↑ → Sellers ↑. Common in 2-sided markets.

NODE 40

Two-Sided Market

>>>

>>>

• Platform serves two interdependent user groups.
• Pricing on one side affects participation on the other.

NODE 41

Gig Economy

>>

🚗

• Short-term, task-based or project-based work.
• Delivery, ride-hailing, freelancing.

NODE 42

Platform Workers

• Matched via algorithms, ratings, dynamic pricing.
• Flexibility vs income security / worker classification.

NODE 43

Digital Economy

• Dependent on internet, software, data, cloud.
• Digital platforms, digital payments, AI.

NODE 44

Data as Resource

↑

• Supports prediction, personalization, ads, automation.
• Value depends on quality, access, processing capability.

NODE 45

Intellectual Property

🔒

• Protects innovation/creative output (patents, copyright).
• Creates legal rights affecting incentives.

NODE 46

Digital Monopoly

• Network effects contribute to concentration.
• More data → More value → Stronger market position.
• Connects back to Realm 06 (Market Structures).

NODE 47

Cryptocurrency

• Digital asset using crypto/distributed-ledgers.
• E.g., Bitcoin, Ethereum. Different technical designs.

NODE 48

Blockchain

BLK

BLK

• Distributed ledger recording network transactions.
• Consensus mechanisms, decentralized coordination.

NODE 49

Bitcoin

• Decentralized digital asset on blockchain.
• Supply governed by protocol rules, not central bank.

NODE 50

Crypto vs Money

CRYPTOvsFIAT

• Crypto: Held/traded, but generally not legal tender.
• Do not automatically treat as equivalent to official money.

NODE 51

CBDC

• Central Bank Digital Currency.
• Digital form of central-bank money. India: e₹.

NODE 52

CBDC vs Crypto

CBDC (CEN)CRYP (DEC)

• CBDC: Central-bank issued, sovereign currency.
• Crypto: Privately issued, decentralized architecture.

NODE 53

Smart Contracts

⚙

• Programs executing logic when conditions are met.
• Finance, tokenisation, automated transactions.

NODE 54

Tokenisation

• Representing ownership/claims via digital tokens.
• Financial assets, real-world assets. Enforceability varies.

NODE 55

DeFi

• Decentralized Finance. Apps on blockchain.
• Exchanges, lending protocols, stablecoins.

NODE 56

Stablecoins

• Crypto-assets designed to maintain stable value.
• Fiat reserves, collateral, algorithms. Stability not guaranteed.

NODE 57

Web3

• Decentralized internet architectures.
• Blockchain, token-based ownership. Not a single standard.

NODE 58

Platform Biz Model

FEE

SUB

ADS

DATA

• Earn revenue through transaction fees, subs, ads.
• Commissions, premium services.

NODE 59

Freemium Model

• Basic service Free, Advanced features Paid.
• Converts some users into paying customers.

NODE 60

Subscription Model

↻

• Recurring fees for continued access.
• Software, streaming, cloud services.

NODE 61

Advertising Model

• Users access for free, firm earns via ads.
• Platform connects audience ↔ advertisers.

NODE 62

Transaction-Fee Model

-%

• Platform takes fee when transaction occurs.
• E.g., Seller makes sale → Platform takes commission.

NODE 63

Network Power

• Large user base + network effects + data + switching costs.
• High concentration → competition concerns.

NODE 64

Switching Costs

👤

• Costs users face moving between services.
• Learning costs, data migration, contract penalties.

NODE 65

Platform Lock-in

• Switching costs + network effects keep users attached.
• Strengthens market power.

NODE 66

Digital Divide

ONNET

OFFNET

• Unequal access to internet, devices, digital literacy.
• Can create inequality (Connects to Realm 14).

NODE 67

Automation

👤

• Tech performs tasks previously requiring labor.
• Productivity ↑, costs ↓, skill requirements change.

NODE 68

Artificial Intelligence

🧠

⚙

• Automates, augments workers, creates new roles.
• Prediction, content creation, decision support.

NODE 69

AI & Productivity

🧠

→

• AI adoption → Task automation → Lower costs / Output ↑.
• Benefits depend on skills, capital, infra, management.

NODE 70

AI & Employment

👤🤝👤

• Replaces tasks, complements workers, creates new roles.
• Key question: Which tasks are substituted vs complemented?

NODE 71

Fintech

• Digital tech providing financial services.
• Digital payments, mobile banking, robo-advisory.

NODE 72

Peer-to-Peer Econ

👤

↔

👤

• Platforms facilitate direct transactions between individuals.
• Renting, selling, freelancing.

NODE 73

Sharing Economy

👤

👤

• Increased use/access to assets via platforms.
• Ride sharing, home sharing.

NODE 74

Creator Economy

• Monetize content, audiences, knowledge, creative work.
• Revenue from ads, subs, sponsorships, commerce.

NODE 75

E-Commerce

• Buying/selling through digital networks.
• Expands reach but creates logistics/privacy challenges.

NODE 76

Digital Payments

>>>

• Instant/electronic transfer of money.
• Connects Realm 07 (payments) with Realm 19.

NODE 77

Fin Inc & Tech

• Expands access to payments, banking, credit, insurance.
• But digital exclusion can create new barriers.

NODE 78

Systemic Fin Risk

• Failure at one institution spreads through system.
• Credit, asset prices, confidence, liquidity.

NODE 79

Financial Bubbles

• Asset prices rise above fundamentals (speculation).
• Optimism → Buying → Price ↑ → Crash.

NODE 80

Market Crash

↘

• Rapid/substantial decline in asset prices.
• Wealth losses, confidence decline, economic slowdown.

NODE 81

Leverage

• Using borrowed funds to increase asset exposure.
• Increases gains, but also increases losses (Risk ↑).

NODE 82

Systemic Risk

• Problems in one part disrupt the broader system.
• Interconnectedness, leverage, liquidity mismatch.

NODE 83

Financial Regulation

• Protects investors, market integrity, reduces systemic risks.
• Various regulators oversee the financial system.

NODE 84

Invest vs Speculate

INVEST (VALUE)vsSPEC (PRICE)

• Invest: Expect future returns based on econ value.
• Speculate: Positions based on expected price moves.

NODE 85

Saving vs Invest

SAVE (KEEP)vsINV (ASSET)

• Saving = Income not consumed.
• Invest = Adds to productive/financial assets.

NODE 86

Compounding

• Investment returns generate further returns.
• FV = PV × (1 + r)ⁿ.

NODE 87

Risk-Return-Time

EXPECTEDRETURN

HORIZONTIME

• Investment involves return, risk, time, liquidity, inflation.
• Nominal return ≠ automatically real return.

NODE 88

Real Return

NOMINAL- INFL

REAL RET

• Real Return ≈ Nominal Return − Inflation.
• Links Realm 19 to Realm 11.

NODE 89

Financial Literacy

🧠

💡

• Understanding saving, borrowing, interest, inflation.
• Risk, diversification, insurance, taxes, fraud.

NODE 90

Financial Fraud

• Mis-selling, market manipulation, identity theft.
• Cybercrime, Ponzi schemes. Regs reduce risks.

NODE 91

Ponzi Scheme

• Returns to early participants funded by new ones.
• Not legitimate profits. Collapses when inflows slow.

NODE 92

Market Manipulation

✋

• Creating misleading conditions to influence prices.
• Prohibited by regulators under securities laws.

NODE 93

Entrep + Finance

• Idea → Entrep → Capital → Startup → Prod.
• Revenue → Profit/Reinvest → Growth → Emp/Innovation.

NODE 94

New Economy Master

• Digital Tech → Platforms → Network Effects.
• Gig/Digital Econ → Data/AI → New Services/Comp.

NODE 95

Fin-Market Master

• Savings → Fin System (Banks/Mkts) → Capital.
• Business → Investment → Prod → Income → Consump.

NODE 96

Investment Dec Chain

RETURN|RISK|TIME

• Exp Return + Risk + Time + Liquidity + Inflation.
• → Decision → Portfolio → Actual Return/Loss.

NODE 97

Platform Master

• Users → Network Effect → Growth → More Data.
• Scale → Low Costs → Market Power → Regs.

NODE 98

Realm 19 Master Arch

• Saving → Fin System → Capital Markets → Investment.
• Entrep → Innovation → Digital Econ → AI/Crypto.
• New Models → New Risks → Regulation → Future.