Financial Market


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Financial Market is a broad market where buyers and sellers exchange various types of financial securities or products that comprise financial securities. Financial Markets serve various purposes to a variety of individuals and corporations. Such markets facilitate Investment and purchase of assets. They also facilitate handling of various risks. The financial market can be divided into different subtypes:

Capital markets consists of:

» Stock markets, which facilitates equity investment and buying and selling of shares or common stock.

» Bond markets, which provides financing through the issue of debt

» Contracts and the buying and selling of bonds and debentures.

» Money markets, which provides short term debt financing and investment.

» Derivatives markets, which provides instruments for handling of financial risks.

» Futures financial market, which provide standardized contracts for trading assets at some forward date; see also forward market.

» Insurance markets, which facilitates handling of various risks.

» Foreign exchange markets

» Financial market data provides information about the financial market statiscs.

These markets can be either primary markets or aftermarkets. Newly formed securities are bought or sold in primary markets. Secondary markets allow owners of the security or the product of securities to buy or sell the same.

The Capital Market is the market for long-term loans and equity capital. Companies and the government can raise funds for long-term investments via the capital market. The capital market includes the stock market, the bond market, and the primary market. The government monitors securities trading on organized capital markets; new issues are approved by authorities of financial supervision and monitored by participating banks.

A Stock Market is a market for the trading of publicly held company stock and associated financial instruments (including stock options, convertibles and stock index futures). Traditionally such markets were open-outcry where trading occurred on the floor of an exchange. These days increasingly the markets are cyber-markets with buying and selling occurring via online real-time matching of orders placed by buyers and sellers.

Many years ago, worldwide, buyers and sellers were individual investors and businessmen. These days markets have generally become "institutionalized"; that is, buyers and sellers are largely institutions whether pension funds, insurance companies, mutual funds or banks. This rise of the institutional investor has brought growing professionalism to all aspects of the markets. There are stock markets in most developed economies, with the world's biggest markets being in the USA, Japan, and Europe.

Bond Market, the market in which bonds are traded before their maturity. If interest rates decline after a bond has been issued, the value of bonds already issued with higher rates of interest will rise, and hence the bond market is said to be “up.” A rise in interest rates will lower the value of bonds issued with lower rates of interest and send the bond market “down.”

The Money Market is a general term for the markets in which banks lend to and borrow from each other, trade financial instruments such as Certificates of Deposit (CDs) or enter agreements such as Repos and Reverses. The market normally trades in maturities up to one year. It provides short to medium term liquidity in the global financial system. Derivatives of the money market include forward rate agreements (FRAs) and futures.Trading takes place between banks in the "money centres" (New York and London primarily, also Chicago, Frankfurt, Paris, Singapore, Hong Kong, Tokyo, Toronto, Sydney).

A Derivatives Market is any market for a derivative, that is a contract which specifies the right or obligation to receive or deliver future cash flows based on some future event such as the price of an independent security or the performance of an index. Derivatives markets can be standardized or non-standardized. One derivatives market is for standardized stock options, a market where parties can buy or sell, call or put options on a secondary market. Non-standardized derivatives instruments, such as naked warrants issued directly by financial institutions to a secondary market, also exist.

Insurance Markets, which facilitates handling of various risks. In insurance, the insured makes payments called "premiums" to an insurer, and in return is able to claim a payment from the insurer if the insured suffers a defined type of loss This relationship is usually drawn up in a formal legal contract.

In one classic example of insurance, a ship-owner insures a ship and receives payment if the ship is damaged or destroyed. This example is one of the earliest uses and developments of concepts like insurance. Interestingly, ships are now more often insured through risk pooling and spreading organizations such as Lloyd's of London because the loss of a large ship going down is too great for one insurer to accept.

Insurance companies earn investment profits, because they have the use of the premium money from the time they receive it until the time they need it to pay claims. This money is called the float. When the investments of float are successful, they may earn large profits.

The After Market (also called secondary market) is the financial market for trading of already issued securities. In the secondary market, securities are sold by and transferred from one investor to another. It is therefore important that the secondary market be highly liquid and transparent. The eligibility of stocks and bonds for trading in the secondary market is regulated through financial supervisory authorities and the rules of the market place in question, which could be a stock exchange. Stockbrokers see the secondary market as the retail part of their business. They are dealing with many clients and many relatively small transactions. This can be contrasted with the primary market in initial public offerings, which can be seen as the wholesale side of their business.

The Primary Market is the financialmarket center for the initial issue and placement of securities. Unlike in the secondary market, no organized stock exchanges are necessary. Securities dealers see this as the wholesale part of their business. This process of selling the new stock issues to prospective investors in the primary market is called underwriting. The securities that they sell are called initial public offerings (IPOs). Dealers usually earn a commission that is built into the price of the security offering, that is, it is not apparent unless you read the prospectus in detail.

Commodity Market is an important constituent of the financial market of any country. It is the market where a wide range of products, viz., precious metals, base metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active and liquid commodity market. This would help investors hedge their commodity risk, take speculative positions in commodities and exploit arbitrage opportunities in the market.

The Foreign Exchange Markets are usually highly liquid particularly in the G7 currencies (USD, JPY, EUR, CHF, GBP, CAD, AUD). The main international banks continually provide the market with both bid (buy) and ask (sell) offers. The volume of trading in the foreign exchange markets exceeds that in any other market, liquidity is extremely high.

In the foreign exchange markets there is little or no 'inside information'. Rate fluctuations are usually to do with world economy or the national economies so significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time. Big foreign exchange trading centres are located in New York, Tokyo, London, Hong Kong, Singapore, Paris and Frankfurt amongst others.

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