Financial Market is a marketplace, where buyers and sellers meet to buy n sell or say trade financial products like Shares, Debentures, bonds, derivatives, currencies etc. financial market plays very important role to channelize the resources to run well country?s economy. It is bridge which facilitates to meet the savers and investors.
Functions of Financial Market
- Mobilization of Funds: Financial Market provides a platform to mobilize the savings to its most productive uses.
- Determine the Price: Financial market helps in determining the price of the financial assets by the demand and supply forces.
- Provides Liquidity: Today, Financial Market is being facilitated by exchange. Exchange is kind of a readymade platform to buy or sell the securities in an organized manner.
- Cost Effective: It is an organized market and well regulated by government body. As it is readily available platform, so buyers need not to waste their resources and time to find out the appropriate sellers and vice versa. So in this way it saves time, money and efforts of the parties.
Classification of Financial Market
Based on Maturity
- Money Market: Money Market is basically structured to provide liquidity to the market. The maturity of these instruments can range from a few hours to one year. Financial instruments and companies are the major participants in this market.
- Capital Market: in this market medium and long term financial assets are traded. Capital market is further divided into two types as following-
- Primary Market – When company listed on an exchange, and brings new issue to the market or already listed company brings fresh issue.
- Secondary Market ? in this market place already issued securities are being traded amongst investors. It is also known as stock market.
Based on Delivery Timing
- Cash Market ? In this market the transaction settles in real time.
- Future Market ? where settlements of commodities take place at future date.
Based on Organizational Structure
- Exchange Traded Market ? Exchange traded financial market is a centralized organization with the standardized procedure.
- Over-the-counter Market ? OTC is a decentralized organization and having customized procedure.
Point to be noted: Financial Market does not exist physically. Transactions and trading are performed over a virtual network like fax, phone, and internet.