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Financial Market

In economics, a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other items of value at low transaction costs.

Financial markets facilitate:

· The raising of capital (in the capital markets)

· The transferof risk (in the derivatives markets)

· International trade (in the currency markets)

The financial markets can be divided into different subtypes:

· Capital markets which consist of:

o Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.

o Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof.

· Commodity markets, which facilitate the trading of commodities.

· Money markets, which provide short term debt financing and investment.

· Derivatives markets, which provide instruments for the management of financial risk.

· Futures markets, which provide standardized forward contracts for trading products at some future date.

· Insurance markets, which facilitate the redistribution of various risks.

· Foreign exchange markets, which facilitate the trading of foreign exchange.

The capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities.

Without financial markets, borrowerswould have difficulty finding lenders themselves. Intermediaries such as banks help in this process. Banks take deposits from those who have money to save. Banks popularly lend money in the form of loans and mortgages.

Many borrowers have difficulty raising money locally. They need to borrow internationally with the aid of Foreign exchange markets.

In finance, the money market is the global financial market for short-term borrowing and lending. It provides short-term liquidity funding for the global financial system. The money market is where short-term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and sold.

The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial instruments commonly called "paper." This contrasts with the capital market for longer-term funding, which is supplied by bonds and equities.

The core of the money market consists of banks borrowing and lending to each other, using commercial paper, repurchase agreements and similar instruments.

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