Financial Markets are institutions where people can buy and sell goods, stocks, bonds and other such commodities. It acts as an intermediary between the buyer and the seller. It is a mechanism which places the prospective buyer and seller on a common platform to facilitate trading between these two parties.
Financial Market can be further divided into different markets used for different purposes. They are mainly
Capital Markets is a market where a government or a company can raise money or capital to fund their operations and long term investment. It acts as a bridge between the investors and the companies/government.
Capital Markets consists of Primary and Secondary Markets. Primary Markets is used to raise fresh capital where secondary market is used to trade on securities and bonds. Capital Market can also be divided into Bond Market and Stock Market.
Bond Markets are Capital Markets which facilitate the buying and selling of Debt Securities, corporate bonds and government bonds.
The Bond Market can be classified into 5 more categories
Stock Markets facilitate trading in stocks of the public listed companies.
Commodity Markets are basically those markets where commodities are bought and sold or exchanged. Main commodities include Crude Oil, Gold, Silver, Sugar etc. The market is governed by regulated Commodities Exchange.
Money Markets facilitate short-term lending and borrowing. It offers a good alternative for high risk-based lending. Common Money Market instruments include: Banker’s Acceptance, Certificate of Deposit, Commercial papers, Money Market Mutual Funds, Treasury Bills, Foreign Exchange Swaps and other such instruments.
Derivatives Market facilitates trading in different derivatives. There are different types of derivatives available like Futures, Options and Swaps. All the derivatives trading are regulated by specialized derivative exchanges.
Insurance has been used successfully to transfer the risk from one party to another one. The Insurance market acts as a medium between the insured and the insurers and facilitates all kind of insurance related transactions.
Foreign Exchange Market
Foreign Exchange Markets facilitate trading in different currencies which also helps in cross-border transactions. It also helps to decide the current currency exchange rate between different currencies based on demand and supply mechanism.