Financial Markets
Senior 6 · Entrepreneurship
Financial Markets
Lesson 1 of 4
30 min
Uwase's printing business has had a good year, and she has Frw 600,000 she will not need for five years. She could keep it in cash at home, put it in a savings account at her SACCO, buy government Treasury bonds, buy shares in a company listed on the Rwanda Stock Exchange, or buy units in an investment fund. Each choice puts her money into a different part of the financial system, with a different mix of risk, return and ease of getting the money back. (An illustrative case.)
This unit is about those choices: what financial markets are, how Rwanda's capital market works, what can be bought on it, and how an ordinary person or a small business owner invests there.
Definition
Financial market: any place or system in which financial assets are bought and sold, bringing together those who have spare funds and those who need them. Financial asset (security): a claim to future money, such as a share, a bond or a bank deposit.
Example: the Rwanda Stock Exchange, where shares and bonds are traded through licensed brokers.
Definition
Money market: the market for short-term funds, lent and borrowed for up to one year (Treasury bills, interbank loans). Capital market: the market for long-term funds, more than one year, through shares and bonds.
Example: a bank borrowing overnight from another bank uses the money market; a company selling shares to build a factory uses the capital market.
Definition
Primary market: where new securities are sold for the first time and the money goes to the issuer, for example an initial public offer (IPO). Secondary market: where investors buy and sell existing securities among themselves; the issuer receives nothing.
Example: buying shares in a company's IPO is primary; buying the same shares a year later from another investor on the RSE is secondary.
Definition
Saving: putting aside income that is not spent. Investing: using savings to buy assets expected to earn a return. Return: what an investment earns (interest, dividends, capital gains), usually as a percentage. Risk: the chance that the actual return differs from the expected one, including losing money.
Money flows from savers to users in two ways. In direct finance, the saver buys a security issued by the user: a share in a company or a bond issued by the government. In indirect finance, a bank, SACCO or fund stands in between: it takes deposits or contributions and lends or invests them. In Rwanda, the National Bank of Rwanda (BNR) regulates banks, microfinance institutions and SACCOs, and the Capital Market Authority (CMA) regulates the capital market.
| Function | What it means | Example |
|---|---|---|
| Mobilise savings | Gather many small savings into large sums for investment | Thousands of savers buy units of one fund |
| Allocate capital | Send funds to the uses that promise the best return for the risk | A growing company raises money; a weak one cannot |
| Provide liquidity | Let investors turn securities back into cash | Selling shares on the RSE instead of waiting years |
| Discover prices | Trading sets a price that reflects all buyers' and sellers' views | A share price falls when profits disappoint |
| Share risk | Spread risk across many investors and assets | Owning a fund that holds many securities |
| Lower costs | Standard rules and brokers make deals cheaper and safer | No need to find and check each borrower yourself |
| Type | What is traded | Main players |
|---|---|---|
| Money market | Short-term loans and Treasury bills | Banks, BNR |
| Capital market: equity | Shares in companies | RSE, brokers, listed companies |
| Capital market: debt | Government and corporate bonds | Government through BNR, companies, RSE |
| Foreign exchange market | Currencies | Banks, forex bureaus |
| Derivatives market | Contracts whose value depends on another asset | Mostly large international exchanges |
Worked example 1: what compounding does
Uwase invests Frw 600,000 for 5 years at 9% a year, with the return reinvested each year. Find the final amount.
The gain is about Frw 323,174. Simple interest would give only ; the extra comes from earning returns on earlier returns.
Rule of 72: money roughly doubles in years when is the rate in percent. At 9%, years; the exact answer is about 8.04 years.
Worked example 2: cash at home is not safe from inflation
Suppose prices rise by 5% a year (an illustrative rate). What is Frw 600,000 kept at home worth, in today's prices, after 5 years? And what is the real return on the 9% investment?
Buying power of cash: francs in today's prices: a loss of about a fifth.
Real return: a year. The quick estimate is close when rates are small.
Warning
A higher return always comes with higher risk. Anyone who promises a high return with "no risk", or pays early investors from later investors' money, is running a scam. Before investing, check that the firm is licensed by CMA (capital market) or BNR (banking and microfinance).
Tip
Saving first, investing second. Keep an emergency fund you can reach at once (a savings account or mobile wallet), and invest only money you will not need soon. That way a fall in share prices never forces you to sell at a loss.
TED-Ed, "How does the stock market work?" by Oliver Elfenbaum. Watch for the difference between raising money by selling shares (primary market) and trading them afterwards (secondary market).
Practice
Sources and credits
Written by Ganzaa: Uwase's case, the flow-of-funds diagram, the tables, the worked examples and the practice items. The interest and inflation rates are illustrative (2026).
