doi.org/10.52340/eab.2026.18.01.11.

A financial market is a specialized sphere of monetary operations where transactions channel surplus funds from households, corporations, and government entities into financial assets, benefiting the recipients. Its primary purpose is to ensure the steady flow of capital investments into enterprises within the real sector of the economy.
Each year, countries increase their borrowing in financial markets. Most firms engaged in securities operations are well-established and hold strong positions in the stock industry. Nevertheless, the functioning of stock markets is ultimately shaped by diverse business sectors and government policies.
Investors seek security, high returns, and liquidity for their investments, yet economic principles rarely allow these conditions to coexist fully. At present, foreign currency–denominated bonds, held by a broad range of investors, demonstrate significantly higher liquidity compared to bonds denominated in Georgian Lari (GEL), which are primarily concentrated among a few institutional investors. Over the past decade, Georgia’s corporate bond market has grown substantially, with the expansion of retail investor participation seen as essential for its continued progress.
This article explores the role of investment bankers, the importance of specialized investment funds, the dynamics of active and passive portfolio management, and diversification – one of the central concepts in modern portfolio theory.
Special attention is devoted to foreign exchange risk in relation to foreign securities, hedging strategies, and influencing factors. The considerable impact of taxation and inflation on investment decisions and outcomes is highlighted, with emphasis on the need for comprehensive research into the relationship between interest rates and inflation. The article also underscores reforms in Georgia’s securities market regulatory framework and amendments to the Tax Code introducing tax benefits for debt and equity instruments.
The growing interest in investment – both globally and in Georgia – particularly in corporate bonds, reflects increasing confidence in local companies. Moreover, the establishment of the International Securities Central Depository (ISCD) in Georgia is expected to significantly enhance international investors’ access to the Georgian capital market. The conclusion affirms the effectiveness of international diversification: while full interconnection of national economies would cause stock markets to move uniformly, limiting potential gains, in practice international diversification remains profitable.
Recommendations are offered to safeguard investors’ interests. These include restoring the provision in the Securities Market Law that required public securities trading exclusively on the stock exchange, since off-exchange fixing rendered information less reliable and often artificial, hindering market development in Georgia. The creation of an investor protection corporation is also proposed, tasked with insuring broker clients’ and exchange members’ accounts against losses from brokerage insolvency. Finally, the introduction of electronic trading platforms is deemed crucial, as they would enhance pre- and post-trade transparency, reduce bid-ask spreads and commissions, and make bonds more accessible and tradable for investors.

Keywords: Financial market, investments in securities, investment management, diversification, taxation, inflation.
JEL Codes: G10, G12, G20, G32, G38

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