A financial market is a place which brings buyers and sellers close to the each other and perform trade functions and engages in the use of financial instruments like shares, stocks, bonds, commodities, derivatives, and currency.being very important for every such detail the financial markets work with purpose of regulating the use of such instruments, they help in setting prices for global trade, eliminate risk and transfer liquidity.
The financial market is made up of many components but the two major ones which are most commonly known are the money market and capital markets. Money markets are usually short-term securities which are used by governments and corporate organizations for the purpose of borrowing and lending. Whereas capital markets are used for long-term assets which mature after one year or more. Check out the website for knowing more about how to access such markets.
Detailed view of the capital market:
This market deals with the equity and debt market dealing in stocks and bonds. These markets are very commonly used ones and the stocks and bonds are closely monitored in daily use so that it aids in the economic development globally. Thus the institutions which work in this market are also focusing towards this goal. The institutions are the stock exchanges and the commercial banks.
Some of the important functions that a capital market performs are:
- Help the institutions raise funds for long-term uses like mergers and acquisitions.
- Expand a line of business or develop a new business
- In the bond market companies issue debt in terms of corporate bonds and local and federal governments issue government bonds.
- The buyers and sellers of bonds or equity come together in the market and deal with their instruments
- There are two types of such markets called as a primary market which is the first-time market where new securities are dealt and the secondary market which deals in existing ones.
Detailed view of Money Market:
The money market is a simple and short-term market where the securities are dealt easier and quickly with minimal risk. Some of the instruments in this market are collateral loans, deposits, bills of exchange and acceptance. Some of the institutions which work in the money market are commercial banks, central banks, and acceptance houses.
Some of the main functions of this market are:
- They ensure liquidity in operation of funds by maintaining appropriate levels of liquidity in daily based activities.
- Investors inbvesting suing money market funds find it a safer environment and are assured a tension free investment journey.
- They help in dealing with funds that are to be used as the working capital for many companies.
- These are easily accessible an dare used by fixed income categories.
Thus the financial market hugely works on the proper balance between the capital and money markets.