Financial market stands for the general heading of any marketplace where a trade of assets such as equities, bonds, currencies and derivatives takes place. Financial markets are common to nearly each nation of the world.
The quantity of participants differs from market to market. Some markets are very small because of having few participants. And there are markets like New York Stock Exchange (NYSE) and the FOREX markets where the daily turnover reaches trillions of dollars.
Actually the term financial markets encompass markets used to raise finance. A large number of buyers and sellers involving firms, households and government agencies work in one “place” which makes it easier to find each other. Firms by the help of financial markets and institutions raise money.
For the long term finance are used Capital markets and for short term finance are used Money markets. This general term may also refer to all the other markets in the financial sector. Below are mentioned the features and options of each of the mentioned financial markets.
The markets where institutions and individuals trade financial securities are known as capital markets. A company raises money by the sale of securities, i.e. stocks and bonds. This type of market consists in primary and secondary markets as certain organizations in the public or private sectors in order to raise their funds sell securities on the capital markets. The primary market is where new issues are first offered. On the other hand secondary markets let investors buy and sell already existing securities.
Stock Markets: Due to the stock markets investors can buy and sell shares in publicly traded companies. They form one of the crucial domains of a market economy.
Bond Markets: A bond market is considered a debt investment where investors loan money to a corporate and governmental entity. The latter borrows the funds for a defined period of time at a fixed interest rate. Investors can buy and sell bonds on credit markets around the world. Therefore a bond market is also known as debt, credit or fixed-income market.
This type of markets is used by states, municipalities, companies and foreign governments for the intention of providing a financial support of various projects and activities. Hereby the municipal bonds, corporate bonds and U.S. Treasury bonds, as well as notes and bills are referred to as the main categories of bonds.
Money market forms a certain part of the financial market where financial instruments are traded. This type of market serves for participants to borrow and lend in a short time period(from several days to a year).
The participants of money market differ greatly ranging from a company which raises money by selling commercial paper into the market to an investor purchasing certificates of deposits (CDs). Though the money market is considered a secure place to put money investors should take into account the risk of default on securities.
As a conclusion we can say that each financial market is peculiar with specific features and each of them performs certain functions. You can find detailed information about other vital areas of financial market in our next articles.