Financial Market and Its Types


 
 
Concept Explanation
 

Financial Market and Its Types

 A financial market is a market in which people and entities can trade financial securities, commodities and other items of value at low transaction costs and at prices that reflect supply. The financial markets act as a link between borrowers and lenders. There are both general markets (where many commodities are traded) and specialised markets (where only one commodity is traded). Markets work by placing many interested buyers and sellers, including households, firms and government agencies, in one "place", thus making it easier for them to find each other.

Functions of a Financial Market

  • It provides the borrower with funds so as to enable them to carry out their investment plans.
  • It provides liquidity in the market so as to facilitate trading of funds.
  • It provides liquidity to commercial banks.
  • It facilitates credit creation.
  • It promotes savings.
  • It promotes investment.
  • It facilitates balanced economic growth.
  • Types of Financial Markets

            A financial market consists of two major segments-

  • Money Market :- It is used by a wide array of participants from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term.
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