Financial Market

Financial Market

Financial market is a mechanism that allows people to easily purchase and sell financial securities. In short it means is a system which allows people to trade financial securities like stocks and bonds, commodities and other fungible items of value at low transaction which reflects the efficient. In the financial market the price of such instruments are determined by the laws of demand and supply in the market. Financial market facilitate following

1. The raising of capital
2. Risk Transfer
3. International Trade

Types of Financial Market

Financial market can be divided as under

1. Capital Market: The financial market in which funds are borrowed or loaned for long terms periods i.e more than one year. The instruments of capital markets are less liquid marketable securities i.e share, debenture and bonds.
2. Stock Market
3. Bond Market
4. Debenture
5. Foreign Bills
6. Fixed Deposit

Capital market can be classified in to two types Primary Market and Secondary Market  

• Over the Counter Market: in short it is called as OTC market which does not have physical locations, and trading is done electronically. Participation of two parties (Buyer and Seller) shall be happened without a broker. The market is smaller than primary market and it does not require strict regulation and is economy.
• Money Market:  The financial market in which funds are borrowed or loaned for short terms periods. i.e less than one year.   Money market instruments are highly liquid market and is more secure. T-bills, certificate of deposit, commercial paper are the example of market.
• Derivative market:  it is a contract between two or more parties whose payoffs depend upon underlying assets. It is secondary market whose value is derived from the value of the primary security. There are four participants in such market Hedger, Arbitrageurs, Speculators and margin traders
• Forex Market: it is the market in which participants can buy, sell or exchange foreign currencies. It is the most liquid market and fluctuation in foreign exchange rate could arise high profit or high loss to participants.   In short forex market is highly volatile market

Financial market is good platform for investors but it is subject to risk and most of people follow rumors, prediction for the investment which may hamper their fund. So discipline trading along with market analyses, market study need to be done for the investment in financial market.  It is recommended that investor should collect actual information, data before investment

By: Munankarmip