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What is a Financial Market?

by Bhakti

A Financial Market is a place of business in which various types of bonds and securities are traded. This includes a variety of financial securities such as fixed income markets, stock markets, foreign exchange markets and derivatives markets. Financial Markets are important for the smooth functioning of capitalist economies and act as agents between various collectors and investors. Basically, these markets mobilize the flow of capital between investors and collectors.

Types of Financial Markets

The different types of Financial Markets are:

Over-the-counter markets: These are disseminate financial markets that have no physical location. Trading of such market is direct without brokers.

Bond Market: Bonds are basically securities that allow investors to lend money. These have a fixed maturity period and have a predetermined interest rate. Students need to understand the types of financial markets and that the bond market sells securities such as banknotes, bills and bonds.

Money Markets: These markets trade liquid financial holdings that offer very short maturity holdings (typically less than one year). Financial holding offerings by such markets are considerable very safe financial holdings, but they offer a lower return on investment.

Derivatives Market: Derivatives are contracts agreed between two or more parties based on a financial asset or set of assets. Here, an asset refers to an asset in a security, and a set of assets refers to an index.

Forex Markets: These markets deal with currencies and their names are derived from “Forex Markets”. These are the most fluid of the various financial markets as they allow individuals to buy, sell, exchange and even guess the currency and its value directly.

Financial Market Function

While studying the functioning of financial markets, students should be aware of these aspects discussed below.

Mobilization of funds: Of the various types of functions offered by financial markets, one of the most important functions is the mobilization of savings.

Pricing: Another important function that financial markets offer is the pricing of various securities. Basically, the supply and demand of financial markets, along with the interaction between investors, determines these pricing.

Financial Holdings Liquidity: A tradable asset must be provided with liquidity for its smooth functioning and flow. This is another role of financial markets that continue to support the functioning of capitalist economies.

Ease of access: Financial markets also bring traders to the same market, thus providing efficient trading. As a result, stakeholders do not have to spend resources, capital or time, to find interest buyers or sellers.

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