financial-market

MainContentsFinancialMarketTypesofFinancialMarketsFunctionsofFinancialMarketsMadebyAfinancialmarketisamarketinwhichpeopleandentitiescantradefinancialsecurities,commodities,andotherfungibleitemsofvalueatlowtransactioncostsandatpricesthatreflectsupplyanddemand.DifferentTypesofFinancialMarketsCapitalMarketCapitalMarketconsistsofprimarymarketandsecondarymarket.Inprimarymarketnewlyissuedbondsandstocksareexchangedandinsecondarymarketbuyingandsellingofalreadyexistingbondsandstockstakeplace.So,theCapitalMarketcanbedividedintoBondMarketandStockMarket.BondMarketprovidesfinancingbybondissuanceandbondtrading.StockMarketprovidesfinancingbysharesorstockissuanceandbysharetrading.Asawhole,CapitalMarketfacilitatesraisingofcapital.MoneyMarketMoneyMarketfacilitatesshorttermdebtfinancingandinvestment.DerivativesmarketDerivativesMarketprovidesinstrumentswhichhelpincontrollingfinancialrisk.ForeignExchangemarketForeignExchangeMarketfacilitatestheforeignexchangetrading.InsuranceMarketInsuranceMarkethelpsinredistributionofvariousrisks.Thefunctionsoffinancialmarketmainlyincludestwoaspects--IntermediaryFunctions&FinancialFunctionsTheintermediaryfunctionsofafinancialmarketsincludethefollowing:1.TransferofResources:Financialmarketsfacilitatethetransferofrealeconomicresourcesfromlenderstoultimateborrowers.2.Enhancingincome:Financialmarketsallowlenderstoearninterestordividendontheirsurplusinvisiblefunds,thuscontributingtotheenhancementoftheindividualandthenationalincome.3.Productiveusage:Financialmarketsallowfortheproductiveuseofthefundsborrowed.Theenhancingtheincomeandthegrossnationalproduction.4.CapitalFormation:Financialmarketsprovideachannelthroughwhichnewsavingsflowtoaidcapitalformationofacountry.5.Pricedetermination:Financialmarketsallowforthedeterminationofpriceofthetradedfinancialassetsthroughtheinteractionofbuyersandsellers.Theyprovideasignfortheallocationoffundsintheeconomybasedonthedemandandtothesupplythroughthemechanismcalledpricediscoveryprocess.6.SaleMechanism:Financialmarketsprovideamechanismforsellingofafinancialassetbyaninvestorsoastoofferthebenefitofmarketabilityandliquidityofsuchassets.7.Information:Theactivitiesoftheparticipantsinthefinancialmarketresultinthegenerationandtheconsequentdisseminationofinformationtothevarioussegmentsofthemarket.Soastoreducethecostoftransactionoffinancialassets.FinancialFunctionsProvidingtheborrowerwithfundssoastoenablethemtocarryouttheirinvestmentplans.Providingthelenderswithearningassetssoastoenablethemtoearnwealthbydeployingtheassetsinproductiondebentures.Providingliquidityinthemarketsoastofacilitatetradingoffunds.ProvidingliquiditytocommercialbankItfacilitatecreditcreationItpromotessavingsItpromotesinvestmentItfacilitatesbalanceeconomicgrowthItimprovestradingfloors