An Introduction to Financial Market
The growth of the economy of a country always depends on its financial systems. The financial system plays an important role in the transfer of funds. Sometimes this fund transfer causes some problems like inefficient allocation of resources. To overcome these types of problems the financial system brings a structural approach, this consists of mainly three parts and each of the parts has different functions.
The Classification of Financial System
- Financial Market
- Financial intermediaries (institutions)
- Financial regulators.
Now, let’s read here about Financial Market System
Markets are generally a place where a buyer and a seller are brought together. Hence the financial market is a market where the financial instruments are traded and exchanged. The functions of the financial market system are price discovery, liquidity, and low transaction cost. Different types of financial market systems are available in the market they are,
- Capital Market
This market helps to raise capital on a long-term statement, for the most part, more than one year. The capital market comprises the primary and secondary market.
The primary market, the shares, and bonds are created and traded for one time without using any stock exchange process.
In the secondary market, the investors can purchase previously issued stocks, bonds or other options from other investors.
The primary and secondary market is again subdivided into bond markets and the stock market.
In the bond market, the debt is acquired through bond issuance and bond exchange.
In the stock market, the finance is provided by sharing ownership of the company through stock issuing and exchanging.
- Money Market
The money market is another type of financial market; in the money market, the borrowers and lenders can exchange their funds to solve their liquidity needs. It is comparatively low-risk financial claims and has high marketability and the exchange of funds is conducted for short term.
- Foreign Exchange Market
Foreign exchange market is also known as the forex market in which the market facilitates foreign trading. Any person or company, the country can participate in forex trading.
- Commodity Market
The commodity market is market in which the products such as oil, rubber, wheat, coffee are traded and financial transactions are exchanged after physical purchase. It comprises two types of hard commodities such as gold, oil, rubber and soft commodities such as wheat, cotton, sugar.
- Derivatives Market
In the derivatives market, the financial instruments like futures, contracts are facilitate trading to control the financial risk.
- Insurance Market
The insurance market is a popular market in which the risks are reduced by transferring the amount. In the insurance market insurer and policyholder make an agreement to reduce the risk of an uncertain loss.